HMRC to crackdown on VAT grouping in the care sector
25 April 2025| CATEGORIES: Care sector, HMRC guidance, tax avoidance, VAT grouping| TAGS: HMRC, tax avoidance, VAT grouping
HMRC has published new guidance which clarifies its position on the use of VAT grouping within the care sector, addressing concerns around tax advantages achieved through group structures that include both state-regulated and non-state-regulated entities.
The new guidance
In Revenue and Customs Brief 2 (2025): Use of VAT grouping within the care industry HMRC identify particular grouping structures they consider to be a form of tax avoidance. Action will be taken against these arrangements to prevent future revenue loss.
Which group structures are affected?
The affected VAT group structures involve both:
- a provider which is not state-regulated — meaning they are not registered with the Care Quality Commission (CQC) in England or the equivalent bodies in Northern Ireland, Scotland and Wales
- a provider that is state-regulated.
What is the issue?
HMRC has identified a growing use of VAT grouping structures by state-regulated care providers to recover VAT on costs that relate to supplies of welfare services that would otherwise be exempt from VAT.
These structures incorporate an unregulated entity into the supply chain between the state-regulated provider and the local authority or NHS Integrated Care Board to which the supply is made. Identical supplies made to private individuals remain exempt from VAT.
What action will HMRC take?
- New VAT Group Applications
Going forward, any new applications for VAT grouping involving care providers will face increased scrutiny. Where necessary HMRC will refuse new VAT group registration applications that are designed to implement and facilitate these VAT grouping structures. - Existing VAT Groups
HMRC is launching a programme to review and investigate all instances where it is known or suspected that an avoidance scheme is in operation within a VAT group arrangement. Where necessary, HMRC will issue a termination notice and remove relevant parties from VAT groups
Businesses found to be involved in a tax avoidance scheme face the prospect of HMRC fully investigating their tax affairs and potentially being treated as a high-risk taxpayer.
Care providers operating VAT grouping arrangements should carefully review their current VAT accounting practices and seek tax advice where necessary.