Tips for home care providers on how to legitimately claim back VAT

Anyone involved in running the books for a care business will know that fees for care services are VAT-exempt. This has been the case for almost 50 years when, in 1973, the UK joined the European Union.

Care fees were made VAT-exempt, which meant they could be kept lower than they otherwise might be, but it also meant operators of care services could not claim back VAT paid as part of their trading costs, which other business operators are able to recover. This has been costing the sector over £600 million annually.

One might have thought that when the UK left the EU a couple of years ago, the Government would have revisited the care fees tax rule, perhaps making them zero-rated rather than tax exempt thus enabling care businesses to recoup VAT paid on outgoings but no, things remain as they were since before Brexit.

Care providers have been living with this for so long that it still comes as a surprise to some that VAT can in fact be recouped in respect of publicly funded care services. Because the Care Act 2014 doesn’t compel public funders such as local authorities to contract with a regulated entity, operators of care services can, by means of arm’s length invoicing, legitimately structure themselves to enjoy some level of VAT recovery. But contract restructuring goes far beyond day-to-day business administration; it’s a project and it needs careful project management.

“Contract restructuring can be complex, with many ‘moving parts’ involved with planning and implementing the change, and then managing the ongoing process,” says Jock Waugh, managing director of Kieran Lynch, a specialist firm which has helped dozens of care providers restructure their VAT arrangements for more than a decade.

“VAT restructuring needs to be done correctly – building relationships with commissioning groups and local authorities is a key factor, as is attention to detail with regard to invoicing and securing payments. Also, given that retrospective claims may be made for periods of up to four years, it really needs a team with the resources, VAT knowledge and experience to deal and manage the contract restructuring. Again, the detail needs to be gone into; who were the services users for which VAT can be retrospectively claimed? What were the periods of occupancy?”

But knowing the VAT rules and mechanisms is probably only about 20% of the task; Mr Waugh says the bulk of Kieran Lynch’s work is about building relationships and managing how the provider interfaces with HMRC and funding bodies.

“Then there is the whole billing process, communicating with contract managers and Shared Business Services (the NHS’s centralised payments hub),” he said. So those considering VAT restructuring should keep in mind that:

• VAT paid on operating costs associated with publicly funded clients can be claimed back via arm’s length invoicing.

• Building relationships with commissioning groups and local authorities is a key factor, as is attention to detail with regard to invoicing and securing payments.

• Close attention must be given to where VAT can be retrospectively claimed: who were the publicly funded service users? What were the periods of occupancy?

• It needs a skilled and experienced team to arrange both the restructuring and ongoing management.

So for those providers of elderly and specialist care whose client base has a significant proportion of publicly funded clients, VAT restructuring is a proven route to improving business efficiency.

“The benefits are clear,” says Mr Waugh. “But it needs to be done properly – it is simple for the operator if they bring a specialist team on board.”

Healthcare VAT specialists Kieran Lynch & Co is running a webinar 'How to approach VAT recovery' on 8 September 4-5pm.

In this webinar Jock Waugh of Kieran Lynch & Co will present the benefits to care providers in implementing this long-established planning of VAT contract restructuring with advice and guidance on its practical implementation. He will also outline HMRC's current view and share the benefits of VAT recovery for care providers.

Jock Waugh will be joined by John Wearing of Anthony Collins Solicitors. He will highlight the regulatory issues which need to be considered and how professional advice can safeguard homecare providers.

To register for the webinar please click here

click here for more details or to contact Kieran Lynch & Co