HM Revenue and Customs Brief 2/17 - VAT - care homes and hospitals
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Purpose of this brief
This brief sets out HM Revenue and Customs (HMRC) revised
policy on the VAT zero rate for new buildings intended for use solely
for a relevant residential purpose as care homes. It explains the
distinction between buildings used as care homes (and similar
facilities) which are eligible for zero rating and hospitals which are
2. Who should read this
All parties involved in the construction and supply of
buildings that are designed as care homes and hospitals.
The construction and first grant of an interest in a building,
intended for use solely for a relevant residential purpose as a care
home, is zero rated. A care home is one that provides residential
accommodation with personal care to people in need of such care. Care
may be needed because of:
- old age
- past or present dependence on alcohol or drugs
- past or present mental disorder
The construction of a hospital is standard rated. However,
just because an institution is badged as a ‘hospital’ doesn’t
necessarily exclude it from being treated as a care home. If the
intended purpose of the building is to provide accommodation for the
care detailed above, its construction may be zero rated.
There are 2 key areas of difference between care homes and
|Aim to treat patients quickly then
discharge them to
make space for other patients needing treatment.
|Allow lengthy periods of residence for individuals
suffering from conditions that need longer term care.
|Deal with injuries, illnesses and conditions that
medicinal or clinical intervention and rely on staff with the
appropriate qualifications to carry out these functions.
|Provide personal care that tends to be for the purpose
of enabling a person to look after themselves.
There have been a number of cases involving the status of care
homes and whether they qualify for zero rating. In the latest of these,
Pennine Care NHS Trust (TC04998), the First-tier Tribunal held that
‘personal care’ is a term that must reflect current times; it may go
beyond the basics of feeding and washing and in our view, in the
context of mental health illness, the inclusion of the type of bespoke
and specialist care provided by the Unit doesn’t trespass into the
arena of a ‘hospital or similar institution’.
4. The change in HMRC policy
Following the decision in Pennine, HMRC has
reviewed its policy with regard to the VAT treatment of the
construction or first grant of new care homes. It accepts that personal
care may go beyond a supportive and supervisory role to assist with
living. The term may include both therapeutic and clinical treatment
that can alleviate or improve the condition of the individual. When
determining whether an institution is a care home or a hospital, HMRC will now
consider whether there is provision for a person to be in residence for
a lengthy period.
Personal care may incorporate a high level of medical
treatment if it’s essential to the accommodation that’s being provided.
Care homes, as distinct from hospitals, may be set up to offer an
extended period of in-house treatment or to offer treatment that
assists recovery or rehabilitation.
A care home may have a treatment centre that occupies a
building, or a distinct part of a building. The treatment centre will
be subject to zero rating if it’s to be used solely for the residents
of the care home - used 95% or more by those residents. If it’s used
more than 5% by non-residents of the care home, the zero rate won’t
apply to its construction or first grant of a major interest (freehold
or long lease over 21 years or 20 years in Scotland).
The decision in Pennine was in the specific context of care
provided for persons detained under the Medical Health Act 1983. HMRC accepts
that the approach adopted by the First-tier Tribunal will apply to
other institutions (such as hospices) which allow for a longer period
of convalescence or rehabilitation than would commonly be the case in a
5. Claims for overpaid
If you have previously incurred VAT on supplies that you
believe would have been eligible for zero rating under the revised
policy, you may be able to recover the overpaid VAT where you have:
- been supplied services of construction
- received first grants in buildings used solely as care homes
- received first grants of conversions into buildings used
solely as care homes
You will need to recover the VAT from your supplier who may be
able to make an adjustment to his VAT account and repay to you the
amount that was overcharged. In order for you to be entitled to the
repayment of VAT the supplies, to which it relates, must not have
occurred more than 4 years previously. You will need to produce a
certificate to enable your supplier to repay the VAT that has been
overcharged - see Section 17 of VAT Notice 708: buildings and
construction. Paragraph 17.6 of this notice allows a customer, who has
received services from a supplier to issue a late or belated
certificate provided that:
- at the time the supply was made the customer could
demonstrate that they had an intention that the building would be used
in the way being certified
- all other conditions for zero rating have been met
Those who believe that they’ve accounted for VAT on supplies
on which none was due are entitled to bring claims under section 80 of
the VAT Act. HMRC
has the power to refuse claims and make payment conditional on the
reimbursement of the claimant’s customers where they can show that the
claimant passed the economic burden of the tax charge on to his
customers (meaning that he would be unjustly enriched by payment of his
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