HMRC targeting VAT grouping arrangements in the care sector
In guidance that was published on 24 April 2025, HMRC has stated that it has identified a growing use of VAT grouping structures by state-regulated care providers. As such, they are initiating a clampdown on how they’re utilised within the sector.
What is the focus of HMRC’s attention?
The campaign specifically affects state-regulated care providers who have formed a VAT group with a non-state-regulated care provider to gain a VAT advantage.
Through the use of VAT grouping structures, these providers have been able to recover costs that relate to supplies of welfare services that would ordinarily be exempt from VAT.
Through the use of VAT grouping structures, these providers have been able to recover costs that relate to supplies of welfare services that would ordinarily be exempt from VAT.
HMRC has stated that it considers these structures to be a form of tax avoidance and is taking immediate action to stop the use of such arrangements.
HMRC’s response
HMRC has announced a two-pronged approach to tackle the perceived misuse of VAT rules:
- It will refuse new VAT group registration applications that are designed to facilitate the VAT grouping structure.
- It 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.
The impact on the care sector
As VAT on certain services and goods could potentially no longer be reclaimable, the operational budgets of affected care homes and providers could be adversely affected.
This, in turn, may lead to:
- Increased costs being passed on to local authorities or individuals who fund their own care.
- Reduced financial viability for some care operators.
- A possible contraction in the number of care providers able to continue operating under higher cost burdens.
Considerations
This latest clampdown reflects HMRC’s broader focus on closing loopholes and challenging tax avoidance strategies across various sectors. For care providers, aggressive tax structuring, even where technically legal, is no longer acceptable .
Providers who have used such arrangements could potentially find themselves exposed to repaying VAT previously reclaimed, plus associated interest and penalties. For penalties, the legislation was changed so that reasonable care or excuse did not include relying on the advice provided by a promoter. Providers currently using or considering such VAT groupings are advised to seek professional guidance and prepare for HMRC compliance action.
We are here to help
If you operate in the care sector and have any questions or concerns about your VAT position or need to make a disclosure, please get in touch with a member of our VAT team.
