HMRC Revenue and Customs Brief 2 (2025) was released yesterday (24 April 2025), which addresses HMRC’s view on the use of VAT grouping structures within the care industry (often referred to as ‘welfare services planning’).
Key points
- Avoidance: HMRC state that they consider certain VAT grouping structures to be avoidance. These structure typically involve state-regulated care providers forming VAT groups with non-state-regulated providers to, in HMRC’s view, artificially reduce VAT liabilities. HMRC considers that such arrangements can misrepresent the nature of the services and create artificial separations between state-regulated and non-state-regulated services (exploiting VAT grouping rules).
- VAT Grouping Changes: HMRC states that it will use its powers of protection of the revenue to both de-group existing VAT groups and refuse new VAT group applications.
- Action required: HMRC set out the need to make contact with them, and the risks of non-compliance — including financial penalties and being viewed as a “high risk” organisation from a tax perspective which results in increased scrutiny from HMRC across all tax affairs.
- Need for Professional Advice: HMRC strongly recommend, given the complexity of VAT regulations and the specific nature of these changes, seeking professional advice to ensure compliance.
Next steps
Whilst trade representatives continue to have discussions with HMRC regarding the viability of these structures, as well as championing alternatives that can provide the VAT recovery needed to support the viability of the sector, it is clear that at the very least consideration of any structures you have in place is needed. This is likely to lead to the need to take action and contact HMRC.
We are here to assist you in navigating this policy statement. Please do not hesitate to contact us for further information or to schedule a consultation.
