In The Lilias Graham Trust v HMRC [2021] UKUT 36, the Upper Tribunal (UT) upheld the First Tier Tribunal's (FTT) decision that a charity's single supply was exempt for VAT as welfare services and the integral supply of accommodation could not be standard-rated.

The charity appealed the FTT's decision to uphold HMRC's argument that the single supply of accommodation and assessment services was exempt for VAT under Item 9, Group 7 Schedule 9 VATA 1994 welfare services directly connected to the care or protection of children.

Both parties agreed that the services provided at the residential assessment centre were a single supply and the FTT's decision on this was not in dispute. The charity instead appealed on their alternative case which was:

  • The provision of accommodation, whilst part of a single larger supply, was not ancillary to the provision of assessment services.
    • The supply of accommodation and catering services are not included within Item 9, unless they are ancillary to the provision of care, treatment or instruction (as per Note 7).
    • The charity argued that the accommodation supply was as important as the assessment supply and so not ancillary. The two supplies were not independent and one could not be provided without the other. 
    • The charity wanted the accommodation supply to be standard-rated so that they could reclaim a significant amount of input VAT incurred on new accommodation buildings.
  • The FTT had erred in law when considering whether the supply of accommodation was capable of falling within Note 7.
  • The FTT erred in law when not applying the full interpretation of the word 'ancillary' as per the European Court of Justice's (ECJ's) ruling in Card Protection Plan v CCE (Case C-349/96) (CPP). 

The UT considered the charity's arguments and held:

  • The supplies excluded from Item 9 by Note 7 cannot refer to a supply that is an element of a larger single supply.
  • Note 7 pre-dates the CPP case, so should not be interpreted using the definition provided by the ECJ's judgement.
  • If the CPP definition of ancillary were to be used, the outcome would have 'no apparent rationale'. To carve out the supply of accommodation would suggest that it was not part of the larger supply exempt under the welfare exemption. If the supply of accommodation was as integral as the charity claims then it makes no sense for it not to be part of the exempt supply.

The appeal was dismissed.

The background to this case is that the charity initially had to register for VAT at the insistance of HMRC, who believed they were making standard-rated supplies. The change of position that now has HMRC arguing exempt supply means that the charity has been charging output VAT for many years. Conclusion of this case in favour of HMRC will see a refund of over £400,000 due. It will be interesting to see if this is repaid as it will have been collected, in the main, from local authorities.

Useful guides on this topic

Heath and Welfare: VAT
Goods and services related to medical care and welfare can fall within a number of VAT rate categories. Zero-rating normally takes priority, followed by reduced rating, exempt, and failing these, standard rated.

Mixed supplies: Single or multiple supply
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?

External link

The Lilias Graham Trust v HMRC [2021] UKUT 36

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