The government has denied that an accountancy device by a London
company could lead to thousands of residents of care homes for the
elderly, frail, mentally ill and disabled paying thousands of
pounds a year extra in VAT on their bills, writes Bill
Currently, the customs and excise department regard such homes
as VAT exempt under a European Union ruling because they provide
hospital, medical and closely related care.
But Kingscrest, which runs two homes for adults and children
with Down’s Syndrome challenged this ruling as it wanted to be VAT
registered so it could charge VAT to its two main customers Hackney
and Croydon Councils, and then reclaim VAT on goods and services it
buys in. This could lead to a major cut in costs and consequent
increase in profits.
The local authorities would be unaffected as they could reclaim
the money from customs and excise.
But leading accountant John Kennedy warned that a decision by
the independent London VAT tribunal in Kingscrest’s favour could
have devastating effects on the rest of the private care
He said the decision could affect 20,000 privately run care
homes looking after 150,000 residents forcing them to impose 17.5
per cent VAT on bills adding £100 or more on current
Mr Kennedy, a VAT partner with Deloitte Touche, said that the
tribunal ruling was not “binding but persuasive”, and a customs
and excise appeal against the decision in the high court in
Kingscrest’s favour would force officials to impose VAT on private
care home residents paying their own way with “potentially
But a treasury source said: “Nothing is going to happen quickly
and nothing is going to happen at all. We will not allow VAT to be
imposed on vulnerable people in care homes. We will change the law
if necessary to bring in a new exemption that protects them.”
Government sources said they did not accept the VAT tribunal
ruling and were ready to appeal it to the high court. That would
take at least six months.
Any legal tussle could take years going to the court of appeal,
the House of Lords and the European Court of Justice.
Even if Kingscrest won, it did not necessarily follow that the
ruling would, as Mr Kennedy feared, catch all residential care
providers who made a profit.
The prime minister’s official spokesperson supported the
treasury response saying the government would not allow the
residential care sector to become liable to VAT despite the
Kingscrest tribunal decision.