In L I F E Services Limited v HMRC [2016] TC05197 the First Tier Tribunal (FTT) found that excluding welfare services provided by a non-charitable company from VAT exemption breached the principle of fiscal neutrality.

  • The taxpayer is a limited company which is not a non-profit making organisation.
  • They provide day care services for disabled adults, principally those with learning problems.
  • The services are provided at various locations outside their client’s homes.

The FTT were asked to consider whether the supplies were exempt as they fell within Item 9 of Group 7 Schedule 9 of the VAT Act. 

Item 9 provides two ways in which welfare services provided by a private body can be exempt:

  • By being state regulated, or
  • By being a charity.

Neither of these apply to the taxpayer and therefore Note 9 did not directly exempt the services they provided.

Turning to the VAT Directive, the FTT found that:

  • This does not require all welfare or social services to be exempt.
  • Instead the taxpayer must be recognised by the State as being devoted to social welfare before exemption is conferred.

Under the principle of ‘fiscal neutrality’ supplies of goods or services which are similar, and which are accordingly in competition with each other, may not be treated differently for VAT purposes. 

Applying this to the exemption for welfare services the FTT concluded that:

  • Setting a condition that a body must be devoted to social welfare was permissible.
  • Coupling this with a provision which entitles other bodies to the exemption without satisfying that condition breached the principle of fiscal neutrality.

In the current case:

  • The only way a private body making the same supplies as the taxpayer could qualify for exemption was by being a charity.
  • As a charity can have many purposes this could include bodies who are not devoted to social welfare.
  • This option therefore allows exemption without having regard to social welfare.
  • By recognising charities and not the taxpayer, Note 9 breached the principle of fiscal neutrality.

As a result the FTT concluded that the taxpayer’s supplies are exempt.


Case reference: L I F E Services Limited v HMRC [2016] TC05197