RCB/16/20 VAT liability of payroll services
Revenue & Customs Brief, Issue 16. 22 October 2020
1 Purpose of this brief
This brief tells you about HMRC's position following the decision by the Cheshire Centre for Independent Living ('Cheshire') to concede the appeal in the Upper Tribunal. Because the Upper Tribunal set aside the decision of the First-tier Tribunal, there is no change to HMRC's position which is that the Cheshire case was wrongly decided on the grounds set out by the First-tier Tribunal.
The case concerned the VAT liability of payroll services provided to disabled persons to enable them to employ a personal assistant to help them to live in their own homes. The issue was whether this was a service directly connected with the provision of care and therefore exempt.
2 Who needs to read this
This brief applies to:
• organisations that make supplies of payroll services to disabled persons and their advisers
• businesses with appeals claiming payroll services are exempt, where the appeals are currently stood behind HMRC's appeal in Cheshire
3 Background of the First-tier Tribunal's decision
The supply of services by a charity or a state-regulated body which are directly connected with the provision of care is exempt under Item 9 of Group 7 of Schedule 9 to the VAT Act 1994. This implements the VAT exemption for the supply of services closely linked to welfare work in article 132(1)(g) of the Principal VAT Directive.
Cheshire is a charity that provides a