In The Lilias Graham Trust (‘LGT’) v HMRC [2019] UKFTT 0552 TC07346, the First Tier Tribunal (FTT) concluded that a charity which assessed families referred to it by social services was supplying welfare services, therefore exemption applied.

  • LGT, a charity, operated residential assessment centers, which supported mostly parents with mental health issues in learning how to care for their children.
  • LGT registered for VAT after HMRC insisted that it should do so and a late registration penalty was issued. The charity invoices local authorities for its services plus VAT and recovers VAT incurred on its costs.
  • HMRC subsequently changed its view and argued that the services were exempt and the charity should not be registered for VAT or be able to recover its input tax.

LGT appealed on the basis that their supplies were to a Local Authority and not directly connected to children and hence not exempt services. The charity wished to benefit from input tax recovery and treated its services as taxable.

The FTT found that the essential purpose of the supplies made by LGT was to ensure that the child was better cared for and had optimal protection. The FTT decided that both are closely linked and directly connected with the protection of children as also to their care. Accordingly, the appellant made supplies of welfare services which are exempt from VAT. Therefore, there was no output tax chargeable on LGT’s invoices to the Local Authority and no input tax recovery on expenditure attributable to those exempt supplies.

The appeal was therefore dismissed.

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Health and welfare: VAT
Reduced rating, zero-rating and VAT exemption can apply to various services relating to medical care, health and welfare.

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The Lilias Graham Trust (‘LGT’) v HMRC