VAT & Charities Newsletter 21 April 2020


The Chancellor has announced that VAT payments owing to HMRC will be deferred between 20 March and 30 June 2020. Charities taking up this option will be given until the end of the financial year to clear any VAT which is not paid in the suspension period.

However, VAT returns must still be filed throughout this period. If your charity, or a trading subsidiary, or group VAT registration has a Direct Debit in place, the submission of the return will trigger the VAT payment. Charities should ensure that they cancel any  Direct Debit before submitting a VAT return if it wishes to take advantage of the deferment option.

It has also been announced that, due to the impact of COVID-19, charities now have until their first VAT accounting period starting on or after 1 April 2021 to put digital links in place for Making Tax Digital. The deadline was 1 April 2020 prior to this extension.


We realise that VAT is not a priority when compared to the more serious health implications of Covid-19. Nevertheless, legal obligations to deal with VAT will continue.   We recognise the importance of our service at this time and wish to assure our clients that we have taken steps to ensure that we are available to support clients at this difficult time. We have put the following general measures in place.

For the time being all partners and staff are working from home and avoiding all meetings on issues that can be dealt with remotely. This is to prevent unnecessary risk to staff and our clients. Conference calls and video conferencing should allow most work to continue and we have had a number of meetings of his type already.

All staff will be able to continue to work using remote access to our electronic files and technical information systems. Should you have any questions please contact Georgina Clover our Practice Manager on or your usual Constable VAT contact.


1. VAT Liability of Day-care Services

This case concerned the ongoing appeals of L.I.F.E Services Limited (LSL) and The Learning Centre Romford (LCR) relating to the provision of day-care services to vulnerable adults. Previously, the Upper Tribunal had held that supplies by both companies should attract VAT at the standard rate. The companies argued that their supplies were VAT exempt supplies of welfare. Our coverage of the previous judgment can be read here.

In the UK, welfare services are exempt from VAT when provided by either a charity or a state regulated welfare agency. Neither LCR nor LSL are charities, nor are they registered with the CQC. Having failed at the Upper Tribunal to contend that it was state regulated, LCR, along with LSL, advanced this appeal to the Court of Appeal based on the principle of fiscal neutrality.

LCR claimed that the VAT exemption infringed the principle of fiscal neutrality by imposing a different VAT treatment between supplies made by two types of body: charities and private operators. However, the Court rejected this argument on the grounds that, in the eyes of consumers, welfare services provided by charities and private companies appear significantly different enough for the variance in VAT treatment to not infringe the principle of fiscal neutrality. LCR also mounted an argument based around the strict interpretation of the EU law which provides an exemption for bodies “…devoted to social wellbeing.” It alleged that the UK implementation was flawed as it allows exemption for charities which are not solely devoted to social wellbeing. This argument was rejected.

The final submission, which was mounted by both LCR and TLC, is that the English exemption infringes the principle of fiscal neutrality because of the different treatment of providers of day care services in England and Wales on the one hand, and those in Scotland and Northern Ireland on the other. In Scotland and Northern Ireland, the provision of day-care services is a state regulated activity and supplies made by private companies are VAT exempt.

The Court rejected this argument and agreed with the ruling offered by the Upper Tribunal that whilst there is a variance in VAT treatment between providers in different countries within the UK, the principle of fiscal neutrality was not infringed. The law was implemented uniformly across the UK and applied to both types of provider. The fact that the UK having devolved regulation of this sector has created the divergence, rationally and lawfully, does not mean that there is a distortion created within the VAT system.

The Court held in favour of HMRC, asserting that the services provided by both LCR and LSL were taxable at the standard rate of VAT.

Constable Comment: This decision may be of interest to charities which make similar supplies through a trading subsidiary and have treated those supplies as exempt. This case confirms that VAT is chargeable on supplies of welfare services where the provider is not a charity or state regulated i.e. registered with the CQC. Being approved by the Local Authority and being required to DBS check staff were both held not to be sufficient to make a provider “state-regulated”.

If a trading subsidiary is VAT registered, or is required to be VAT registered, and it can recover VAT incurred, this may not present too much of an issue. However, the status of the customer may need to be considered. For example, for supplies to those customers who do not have a right to input VAT recovery, either the consumer or supplier will have to bear the VAT cost. If the customer is a local authority it is likely that it will be able to reclaim any VAT incurred by the supplier due to its section 33 body status for VAT purposes. The position may be different if supplies are made to private individuals and self- funded customers.

2. Occupational Health: Exempt or Standard Rated Services?

This case concerned the VAT liability of “occupational health services”, RPS Health in Business Ltd (RPS) argued that it was making standard rated supplies and HMRC contended that the supplies made were VAT exempt medical services.

Throughout the business’s negotiations with HMRC and in both party’s applications to the Tribunal, there was significant disagreement from both parties to the proceedings, as well as the Tribunal, around whether or not the issue of single/multiple supply should be considered. At different stages of the process, both HMRC and RPS changed their arguments on this point and the Tribunal necessarily debated with itself whether it was appropriate to rule on this point. Ultimately, it concluded that it could.

RPS provides occupational health services to businesses such as medicals, health surveillance, vaccinations, sickness absence management and drug/alcohol testing. It sometimes provides its clients with an Occupational Health (OH) practitioner, such as a doctor or nurse, who delivers a range of onsite, or mobile, services. For this service, RPS charges a fixed price. It also provides its customers with specific services on a bespoke basis.

The Tribunal considered that where one fixed price was paid for the delivery of all of the services in question, the supply was one, composite, VAT exempt supply of medical services. However, it observed that where RPS provides single supplies on a bespoke basis, whilst the majority of those services are exempt, some of them are standard rated such as medico-legal services and training courses. This ruling supports neither party’s submissions entirely but, substantially, the Tribunal agreed with HMRC and held the majority of RPS’s activities to be VAT exempt.

Constable Comment: This case supports the VAT treatment of general contracts for the provision of occupational health services as VAT exempt. Whilst the provider in questions was a limited company, this case will be of interest to charities which make similar supplies. The case highlights some specific services which are standard rated, when provided individually, despite falling under the umbrella of occupational health. The Tribunal observed that pre-employment medicals, pension scheme medicals, ergonomic assessments, laboratory services and administration charges are all standard rated. Any charity which makes comparable supplies may need to consider the VAT treatment of income derived from these activities.

3. Medical Services or Supply of Staff?

This case concerned a decision by HMRC to retrospectively compulsorily register Archus Trading (Archus) for VAT as its supplies were above the VAT registration threshold and were standard rated supplies of staff. Archus believed that it made supplies of VAT exempt medical services so disputed this decision.

The disputed supplies were made by Archus to the Ayrshire and Arran Health Board (AAHB). Under a contract between Archus and AAHB, Archus undertook to supply medical services at HMP Kilmarnock. The contract stated that the obligation to provide healthcare is AAHB’s and that it would fulfil this obligation through the appellant and employment of NHS staff. It also clarified that Archus is “…engaged in providing staff to the NHS so that the NHS can meet their obligations…”. HMRC argued that the contract highlights the position clearly; that Archus is making supplies of staff to AAHB in order for it to fulfil its obligations to HMP Kilmarnock.

Archus argued that if the contract were for the provision of staff, it would have specified that control of the staff would pass to AAHB and, owing to this, that Archus would not have taken out professional indemnity insurance. It also asserted that the contract was clear and consistent in relating to the provision of medical services and not a provision of staff; AAHB had no control over Archus staff members. This is a position which was supported by AAHB which added that it is Archus which orders drugs from the NHS and that it also arranged locum cover when its staff are unavailable. It also carries out extra medical work, which falls outside the scope of the contract, without any request from AAHB.

Analysing the position, the Tribunal considered the judgment in City Fresh Services Ltd, in which is was observed that “There will be a supply of staff if there has been a change of control from the supplier to the recipient over the activities of the individuals concerned.” It was also noted that AAHB is free to discharge its statutory obligations by providing medical services or by appointing a subcontractor to provide medical care.

The Tribunal held in favour of Archus, noting that the staff were always under the control of Archus (so were not supplied to AAHB) and that the supplies were VAT exempt supplies of medical care.

Constable Comment: The difference between making a supply of services and a supply of staff that provide those services can be a difficult distinction to make for the purposes of VAT. These cases are often complex, and others have been significantly more challenging and less successful. It is important to seek professional advice when drafting contracts for the provision of services to ensure the correct VAT treatment is applied, although it is equally important that the activity is carried out in accordance with these contracts.

Constable VAT Consultancy LLP is a specialist independent VAT practice with offices in London and East Anglia. We work together with many charities and not-for-profit bodies ranging from national charities, those working overseas, and regionally based local organisations. Constable VAT has a nationwide client base.

 We understand that charities wish to achieve their objectives whilst satisfying the legal requirements placed upon them. Charities may be liable to account for VAT on supplies made and VAT will be payable on certain expenditure. As irrecoverable VAT represents an absolute cost to most charities, regardless of their VAT registration status, there is a need to review the position regularly and carefully. We offer advice with planning initiatives, technical compliance issues, complex transactions, help with innovative ideas on VAT saving opportunities, and liaising with HMRC.

 If you would like to discuss how VAT impacts on your organisation please contact Stewart Henry, Laura Krickova or Sophie Cox on 020 7830 9669, 01206 321029 or via email on, and  Alternatively, please visit our website at where you can view some of the services we offer in more detail and subscribe to our free general and regular VAT alerts and updates. Visit our website for current news updates. You can also follow Constable VAT on Twitter.

 This newsletter is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. Constable VAT cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this newsletter. Specialist VAT advice should always be sought in relation to your particular circumstance.