Care and childcare supplied by a state-regulated provider are exempt from VAT. The fees carry no VAT, and the VAT on most of the provider's own costs cannot be reclaimed.
Schedule 9 Group 7 of the VAT Act 1994 exempts welfare services supplied by a charity, a state-regulated private welfare institution or agency, or a public body (item 9), and care in a state-regulated institution (item 4). State-regulated means registered with a regulator such as CQC or Ofsted. VAT Notice 701/2 says the supplier "is generally not entitled to reclaim VAT on the costs incurred in making the supply."
GOV.UK says: "You do not have to register if you only sell VAT exempt or 'out of scope' goods and services." Registration becomes compulsory when taxable turnover goes over £90,000 in 12 months, so taxable sales such as training courses or a supply of staff count toward the threshold and exempt care fees do not.
A registered business that makes both exempt and taxable supplies recovers the VAT on costs used for taxable supplies and apportions the rest. If its exempt input tax is no more than £625 a month on average and no more than half of its total input tax, it can be treated as fully taxable for the period. Both conditions must be met.
VAT Notice 701/57 says "all supplies of health professional staff are taxable", with a concession for a regulated nursing agency supplying registered nurses, auxiliaries directly supervised by a qualified nurse, or auxiliaries supplied to a care home with nursing as part of a patient's care. Care assistants who only wash and dress residents are outside it. For an exempt care home, VAT on an agency invoice is a cost it cannot reclaim.
We review which of your income is exempt and which is taxable, check agency invoices, and run the partial exemption calculation where you are VAT-registered. More on accounts, tax and VAT.
No, where the home is registered with CQC or another regulator and the fees are for care and welfare services. Those supplies are exempt.
No. Until Ofsted registers it, its childcare is not an exempt supply of welfare services and will normally be standard-rated, under HMRC's VAT education manual (VATEDU36900).
Free funded hours, voluntary extras and an itemised invoice.
AIA, full expensing, the pools and the 3% building allowance for care homes.
Multipliers, small business rate relief and charity relief for 2026/27.
We look at your last accounts, your payroll hours and your fee rates, and tell you what we would change.