In L I F E Services Limited v HMRC [2017] UKUT 484, the Upper Tribunal (UT) overturned the First-Tier Tribunal, finding that the welfare services provided by a private for-profit business which was not state-regulated could not be exempt.

Welfare services are exempt when provided by a charity, state-regulated institution or agency, or a public body.

  • L I F E is a profit-making private organisation providing day care services for adults with disabilities.
  • Adults are picked up from their homes early in the day, taken to the relevant location, and transported home at the end of the day.
  • Activities such as cooking, walking, swimming, etc. are provided, as well as help with everyday living, money skills, social skills, and personal hygiene.
  • L I F E was not a charity, state-regulated institution or agency, nor a public body.

The First-Tier Tribunal (FTT) found that the services could be exempt under the principle of fiscal neutrality and that UK law was incompatible with the EU VAT Directive.

The UT found as follows:

  • The FTT decision appears to have found that all bodies that supply welfare services should be entitled to the exemption, without any reference to other criteria.
  • The FTT were incorrect to conclude that the wording of the UK law means that any charity, even those whose objects do not include social welfare, can benefit from the exemption and that is incompatible with EU law:
    • Only charities with such an object would be able to offer those services.
    • Charities without that object would not be able to do so.
    • This means that all charities are not automatically included in the welfare exemption. They must have welfare objectives.
  • In the alternative, if UK law is read in a way that permits all charities to exempt welfare services regardless of objects, this is not incompatible with EU law:
    • EU law uses the term ‘devoted to social well-being’ and this will include all recognised charities under UK law as a charity, by definition, must benefit the community and cannot confer only private benefits.
    • This means that all charities must operate to benefit the public and this will therefore work to enhance the well-being of society.
    • Under EU law, all charities may be capable of qualifying for the exemption, regardless of its objects, such that there is no incompatibility if UK law reads the same way.
  • Fiscal neutrality was not in point:
    • Charities, and bodies that are state-regulated, must adhere to certain rules and conform to certain standards.
    • L I F E, not being so regulated can choose whether or not to operate to those standards.
    • L I F E cannot therefore say that it falls within the same class as a charity or state-regulated institution or agency. As it does not fall within the same class, it cannot claim that it is on equal footing with those entities. This means it cannot claim to have been treated differently, to another business on an equal footing.
  • It was not enough for L I F E to be registered with a County Council and subject to oversight by that County Council for it to be deemed to be state-regulated.

L I F E’s welfare services could not qualify for exemption and HMRC’s appeal was allowed.


Health and welfare: VAT

External link L I F E Services Limited v HMRC [2017] UKUT 484