Andrew Hopkins explains the changes to how HMRC views VAT grouping within the care sector.
On 24 April 2025, HMRC published Revenue and Customs Brief 2 (2025), addressing the use of VAT grouping within the care sector.
The Brief sets out HMRC’s view that VAT grouping, where a state-regulated (CQC, CI, etc.) care provider forms a VAT group with a non-state-regulated provider of care services, to reduce the cost of irrecoverable VAT, is a form of tax avoidance.
To address these concerns, HMRC sets out a number of immediate actions it will be taking in respect of such structures as follows:
Making use of its revenue protection powers, HMRC will refuse new VAT group applications that are designed to make use of these structures.
In conjunction with the above, HMRC will be launching a programme to review and investigate any such structures where they suspect an ‘avoidance scheme’ is being used, which could ultimately lead to HMRC removing the non-state-regulated entity from a VAT group, should HMRC determine that tax avoidance is at play. The matter was again highlighted in HMRC’s Spotlight 70, published on 7 May, which provided a brief overview of how the structures typically work or, to use HMRC’s words, “are claimed to work”. The tone of this publication is stronger than the Brief and makes specific reference to HMRC being aware of “a growing number of state-regulated care providers seeking to gain a tax advantage”. It seems clear from the tone of the article that this is not merely a shot across the bows by HMRC and that it will be following through on the proposed action.
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