Government rules out threat of care home residents paying VAT

    The government has denied that an accountancy device formulated
    by a London company could lead to thousands of residents of care
    homes paying more than a hundred pounds extra per week,
    writes Bill Jacobs.

    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
    sector.

    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
    costs.

    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
    disastrous” consequences.

    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.

     

     

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