In Cheshire Centre for Independent Living v HMRC TC7182 the FTT found that a supply of payroll services to disabled people was so closely linked to the provision of welfare services that payroll charges were VAT exempt.

  • A charity  provides a range of support services for disabled people, their families and carers including a payroll service.
  • A disabled person in receipt of a personal care budget may need to employ a personal assistant or other helpers.
  • The charity’s payroll service was offered to ensure that the disabled person met their PAYE obligations as an employer.
  • The question was whether fees charged for the payroll service are so closely linked to the provision of health and welfare services that they are exempt for VAT for the welfare services exemption in item 9 group 7 sch 9 VAT Act 1994.

The First Tier tribunal, following a review of case law concluded that the Payroll Service does constitute a “supply of services closely linked to welfare work” for Article 132(1)(g) VAT Directive 2006 , and a supply of “services which are directly connected with the provision of care” for item 9 Group 7 of sch 9 VATA.

  • Exempting the Payroll Service from VAT is consistent with the objective of reducing cost of care and support.
  • The benefits of the services required by the individual’s care and support plan would be hindered by the increased cost of incurring VAT on the Payroll Service.
  • The Payroll Service does not constitute an end in itself but is instead a means for better enjoying the services of the Personal Assistant.
  • The Payroll Service must be viewed in the particular context of its provision to recipients of Direct Payments, rather than by comparison to employers generally who may choose to engage a payroll bureau.
  • The nature and quality of the Payroll Service is such that, without it, there would be a lesser value to the disabled person of the care and support package.

Useful Guides

VAT: Health & Welfare services
Our guide looks at VAT with links to topical case law and briefs.

External links

Cheshire Centre for Independent Living v HMRC TC7182