This brief gives details of HMRC’s revised policy on VAT zero rating for new buildings intended for use solely as care homes. The brief also includes advice for anyone who has previously incurred VAT on supplies that would have been eligible for zero rating under the revised policy. In those cases, taxpayers may be able to recover the overpaid VAT – details of the policy on reclaiming overpaid VAT are therefore also included.

The construction and first grant of an interest in a building, intended for use solely for a relevant residential purpose as a care home, is zero rated. A care home is one that provides residential accommodation with personal care to people in need of such care. Care may be needed because of:

• old age
• disability
• past or present dependence on alcohol or drugs
• past or present mental disorder

The construction of a hospital is standard rated. However, just because an institution is badged as a ‘hospital’ doesn’t necessarily exclude it from being treated as a care home. If the intended purpose of the building is to provide accommodation for the care detailed above, its construction may be zero rated. The brief explains that there are two key areas of difference between care homes and hospitals.

There have been a number of cases involving the status of care homes and whether they qualify for zero rating. In the latest of these, Pennine Care NHS Trust (TC04998), the First-tier Tribunal held that ‘personal care’ is a term that must reflect current times; it may go beyond the basics of feeding and washing and in HMRC’s view, in the context of mental health illness, the inclusion of the type of bespoke and specialist care provided by the Unit doesn’t trespass into the arena of a ‘hospital or similar institution’.

Following the decision in Pennine, HMRC has reviewed its policy with regard to the VAT treatment of the construction or first grant of new care homes. It accepts that personal care may go beyond a supportive and supervisory role to assist with living. The term may include both therapeutic and clinical treatment that can alleviate or improve the condition of the individual.

When determining whether an institution is a care home or a hospital, HMRC will now consider whether there is provision for a person to be in residence for a lengthy period. More details are available in the Brief.