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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Accounting for VAT if there is no cash payment
Your business has submitted repayment returns for the last two quarters and you are concerned that you might have underpaid output tax on some supplies where no money has changed hands. Are your concerns justified?
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Treatment of distributions under review
The government has launched a consultation on modernising the tax treatment of distributions and repayments of capital by companies. The proposals could affect the distinction between dividends taxed as income and capital payments subject to CGT. What changes are being considered?
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Tax relief on equipment you haven’t paid for (yet)
The timing of tax relief for purchases of equipment isn’t straightforward when payments are delayed or goods are purchased through hire purchase (HP) agreements. How can you use these rules to your advantage and get tax relief before you’ve paid the final invoice?
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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