HMRC have published Revenue & Customs Brief 9 (2021): ‘VAT liability of daycare services supplied by private bodies in England and Wales’ following recent Court of Appeal cases.


LIFE Services Ltd (LIFE Services) provided services to individuals under a formal care plan.

  • This care plan was agreed with the local authority, following an assessment of the individual’s needs and the setting of a budget.
  • The local authority either made payments directly to LIFE Services Ltd or indirectly where the individual or carer was managing the budget.
  • The local authority monitored and inspected the daycare service.

The Learning Centre (Romford) Ltd (The Learning Centre) accepted individuals who had already been assessed by their local authority and had a care plan.

  • Most of its fees came from the local authorities, with parents or carers providing some funding.

Neither Life Services nor The Learning Centre was regulated by the Care Quality Commission.

VAT on welfare

The provision of Welfare services by private bodies that are not charities is exempt from VAT if the body concerned is a state-regulated, private welfare institution or agency.

  • State-regulated is defined as: ‘approved, licensed, registered or exempted from registration in respect of the supply of welfare services by any Minister or other authority pursuant to a provision of a public general Act’.

Court of Appeal findings

Both LIFE Services and The Learning Centre contended their supplies were exempt from VAT. HMRC’s position was that the supplies were standard rated.

In a joint appeal by LIFE Services and The Learning Centre, the Court of Appeal found that:

  • The provisions of law relied on by LIFE Services were insufficient to satisfy the test of being state-regulated.
    • County Council involvement did not amount to ‘state-regulated’ for the purpose of the exemption.
  • The principle of fiscal neutrality was not breached.
  • The supplies did not fall within the VAT exemption and consequently were standard rated for VAT.

This affirmed the decisions of the Upper Tribunal. The Supreme Court has refused leave to appeal.

Appeals stood behind LIFE Services and The Learning Centre

HMRC will write to other appellants asking them whether they intend to proceed with their appeals, given the Court of Appeal’s judgment.

Providers of daycare services in England and Wales who are not charities

Providers of daycare services in England and Wales who are not charities and who have not accounted for VAT on the supply of these services must do so with immediate effect. 

Historic errors must also be Corrected

Scotland and Northern Ireland

Providers of daycare services in Scotland and Northern Ireland are unaffected. Daycare has been state-regulated in Scotland since 2002 and Northern Ireland since 2005.

Daycare providers in Scotland and Northern Ireland will continue to benefit from the exemption as long as they are state-regulated.

Useful guides on this topic

Health and welfare: VAT
Reduced rating, zero-rating and VAT exemption can apply to various services relating to medical care, health and welfare. This guide looks at supplies of medicines, supplies of goods and building works to disabled persons and charities, medical care, and welfare services.

Correcting VAT errors
What are the VAT error correction time limits? Can you correct errors through the VAT return? Do you have to notify HMRC?  

External links

Revenue and Customs Brief 9 (2021): VAT liability of daycare services supplied by private bodies in England and Wales

LIFE Services Limited v HMRC and The Learning Centre (Romford) Limited v HMRC [2020] EWCA Civ 452

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