In Cascade Care Limited v HMRC [2025] TC09680, the First Tier Tribunal (FTT) found a drafting error in the law relating to the welfare services VAT exemption. By reading words into legislation to correct the error, the FTT found that supplies made by a company in Wales were exempt from VAT and not standard-rated.
Cascade Care Limited (Cascade) provided specialist residential and supported living services to adults with mental health needs, autism, learning disabilities and brain injuries, at sites in both England and Wales.
- Cascade’s sites in Wales were regulated by Care Inspectorate Wales from 1 January 2018, under an Act of the National Assembly of Wales
- In December 2023, Cascade sought confirmation from HMRC that its supplies made in Wales fell outside of the VAT exemption for Welfare services, such that they were standard-rated.
- HMRC rejected Cascade’s view in March 2024. Cascade Appealed to the First Tier Tribunal (FTT).
Item 9 of Group 7, Schedule 9, VATA 1994, exempts from VAT the supply of welfare services (and connected goods) by a state-regulated private welfare institution or agency.
- ‘State-regulated’ is defined in Note 8. A private welfare institution or agency is generally state-regulated where it is approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act.
- ‘Act’ is defined as including Acts of Parliament, the Scottish Parliament, and the Northern Ireland Assembly, but critically, the definition of 'Act' in Note 8 does not include any reference to the Welsh Assembly or Senedd Cymru/Welsh Parliament (under which, Cascade's sites had been regulated since 1 January 2018).
- On this basis, Cascade argued that its services were not state-regulated in Wales as defined by Note 8, and the VAT exemption in Item 9 did not apply.
The FTT found that:
- Generally, the role of Parliament is to legislate, and the role of the FTT is to interpret those enactments. However, this was one of the very rare occasions where it was permissible for the FTT to read words into legislation to correct an obvious drafting error in the law.
- At the time that Note 8 was written in 2002, the draftsman was trying to capture all entities that could then, or in the recent past, enact primary legislation.
- As of 2002, this did not include the National Assembly for Wales, which could only pass delegated legislation.
- The draftsman likely omitted the National Assembly for Wales from Note 8 because it could not enact primary legislation at the time of drafting. The draftsman either:
- Had not anticipated the National Assembly for Wales would be given such power in the future.
- Anticipated that if the National Assembly for Wales were granted such power in the future, consequential changes would have been made to Note 8 to include it.
- When the Government of Wales Act 2006 was enacted, it was through inadvertence that Note 8 was not amended to include Acts or measures of the National Assembly for Wales.
- From the structure of Note 8, it was abundantly clear that the provision that Parliament would have made, had the error been noticed, would have been to add an item in the definition of ‘Act’ to include ‘an Act or Measure of the National Assembly for Wales’.
- Such an insertion was not too big for the FTT to make and simply completed a list of institutions reflecting devolution arrangements as they now prevail in the UK.
The appeal was dismissed.
Useful guides on this topic
Health and welfare: VAT
When do reduced rating, zero-rating and VAT exemption apply to services relating to medical care, health and welfare? What are the rules?
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