The First Tier Tribunal (FTT) has suggested, not for the first time, that the UK exemption for welfare services is in breach of EU law, so taxpayers supplying services may be entitled to invoke exemption under the principle of direct effect
Learning Centre (Romford) Ltd (TLC) provided education, activities, and entertainment to vulnerable adults with learning difficulties during working hours, Monday to Friday. TLC provided the students attending the centre with meals, including assistance with eating where required, administered medication, and personal care. HMRC accepted that TLC provided ‘welfare services’ but did not agree that TLC met the conditions to exempt those services from VAT. Under UK legislation welfare services are exempt only when supplied by charities public bodies and “state regulated private welfare institutions or agencies”. HMRC did not accept that TLC was state regulated.
The Tribunal agreed that TLC was not state regulated as defined by the legislation, but went on to rule that the UK has unlawfully exercised the discretion conferred on it by the EU VAT Directive in choosing the regulation of welfare facilities as the criterion by which suppliers devoted to social wellbeing are ‘recognised’ for exemption, because the law on regulation could lead to discrimination in VAT treatment between identical services. It ruled that as the UK’s implementation of the welfare services exemption was unlawful, the company was entitled to rely on the direct effect of the VAT Directive and as a body devoted to social wellbeing its supplies were, and always have been, exempt.
Why it matters: This decision could be very significant for other providers of welfare services, but it seems likely that HMRC will seek to appeal, having done so in an earlier case where the FTT came to a similar conclusion for different reasons. It remains to be seen whether this kind of distortion will be left in UK VAT legislation when we exit the EU.