HMRC says care industry VAT grouping is “tax avoidance”
HMRC is warning that setting up VAT groups in the care industry to reclaim VAT on what would otherwise be exempt supplies is tax avoidance. What’s the full story?
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HMRC clarifies treatment of averaging relief under MTD IT
HMRC has updated its guidance to explain how averaging relief claims will operate under Making Tax Digital for Income Tax (MTD IT). The clarification addresses concerns about how farmers and creators will claim relief once quarterly reporting becomes mandatory. What has changed?
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Double up on the employment allowance
You’re the sole shareholder of a limited company which employs several members of staff. You’re working on plans to start another business with an ex-colleague. Can both businesses benefit from the full employment allowance (EA)?
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VAT cut for children's holiday activities over summer
The government has announced a temporary reduction in the rate of VAT applying to certain children's holiday activity programmes during the summer holidays. The measure is intended to help families with childcare costs during the school break. What has changed?
HMRC says that it considers the structuring of VAT groups within the care industry to gain a tax advantage to be tax avoidance. State-regulated care providers registered with the Care Quality Commission supplying welfare services are exempt from VAT. This means that VAT is not charged on the provision of care services to the Local Authority and consequently, VAT cannot be recovered on any costs associated with the supply of those services.
The structuring involves the insertion of a company that is not regulated, to form a VAT group and act as a “middleman” between the regulated company and the local authority. VAT is then charged by the new company and recovered on costs. While this may seem like a niche area, it is relatively common planning in practice.
HMRC is launching a programme to review all instances where this avoidance arrangement is in place. Further information can be found in Spotlight 70, which explains that any powers used will only take effect once the investigation is complete. This means that where this specific arrangement is in place HMRC will not seek to claim tax back from any earlier period. Users of such arrangements should seek independent professional advice in the first instance.
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