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Great news for welfare service providers with a fair but surprising decision in the VAT tribunal that basically HMRC were wrong to rely on the wording used in UK legislation.

Learning Centre (Romford) Ltd [2017] TC 05946 was the lead case in an argument that they were entitled to apply the welfare VAT exemption.  The taxpayer provided day care facilities for vulnerable adults with learning difficulties.  Having to charge VAT put them at a disadvantage when compared to other providers and it was this lack of ‘fiscal neutrality’ that won them the argument.

HMRC had argued that exemption could only apply to a ‘state-regulated private welfare institution or agency’.  Whereas the tribunal decided that the UKʼs implementation of the EU welfare services exemption was unlawful.  By the UK choosing ‘state-regulation’ as its definition of ‘bodies devoted to social wellbeing’ (per EU legislation) it created discrimination between suppliers.  As a result the taxpayer is entitled to rely on the direct effect of EU legislation so that its supplies have always been exempt.

HMRC may yet appeal the decision which sounds negative but may be the best outcome as a higher court decison could then be relied on by other organisations.  Meantime nice to know at least the tribunals accept that VAT has be applied on a level playing field …