Care providers are required to be regulated by the Care Quality Commission and VAT regulations make fees for the provision of care by a regulated provider exempt from VAT. VAT on costs can be claimed back by businesses which sell services and charge VAT on their fees, but not if the fees are exempt from VAT. This means that care providers pay VAT on many of their costs and are not able to claim it back.
By arranging for fees to be charged by a non-regulated provider, care home operators have been able to claim back VAT on their costs. Statutory bodies, such as local authorities and NHS bodies are able to claim back VAT on the fees from the providers, even if they are not using them for business purposes. Fees funded privately are still charged by the regulated entity, exempt from VAT. The regulated and non-regulated entities are registered together as a VAT Group, and able to claim back VAT based on the proportion of the non-regulated fee income.
