Revenue & Customs Brief 16 (2020): ‘VAT liability of payroll services’ explains HMRC’s position following the decision by the Cheshire Centre for Independent Living to concede in the Upper Tribunal.

In the Cheshire Centre for Independent Living v HMRC TC7182 case, the FTT found that a supply of payroll services to disabled people employing personal assistants in their own home was so closely linked to the provision of welfare services that payroll charges were VAT exempt.

HMRC’s position is that the FTT had erred in law because:

  • The FTT decision did not take full account of the tests laid down in Diagnostiko & Therapeftiko Kentro Athinon-Ygeia AE.
    • These tests included a requirement that to be exempt the services had to be ‘logically part of, or an indispensable stage’ in the provision of the general care and domestic help provided to the disabled person.
  • HMRC’s view is that this test was not met and so the payroll services were not directly connected to or essential to achieving the objectives of that care

HMRC appealed to the UT and introduced an entirely new ground of appeal which the taxpayer accepted and the case was settled in HMRC’s favour without a UT hearing.

  • The new grounds of appeal were that the payroll services could not be ancillary to a principal supply of exempt care provided by a personal assistant (PA) as the principal supply itself was not exempt. It was made by the PA as an employee of the disabled person meaning the PA was neither a body governed by public law nor another body recognised by the UK as being devoted to social welfare within Article 132(1)(g) of the Principal VAT Directive.

There is no change to HMRC’s policy which is that these payroll services are not exempt welfare services.

External link

Revenue and Customs Brief 16 (2020): VAT liability of payroll services