On 28th July 2017, HMRC revised its policy on whether a building has the sole relevant residential use as a care home and is, therefore, zero- rated under Schedule 8 to the Value Added Tax Act 1994 (Schedule 8).

The first grant of an interest in a building, intended solely for a relevant residential purpose, by the person constructing or converting is zero-rated (Item 1(a)(ii), Group 5, Schedule 8). A building used as an institution providing long-term residential accommodation with personal care for persons in need of such (“a care home”) has a relevant residential purpose (Note 4(b), Group 5, Schedule 8). Hospitals and similar institutions are excluded from this rule.

HMRC has revised its view on what constitutes "personal care" for the purposes of Schedule 8 following the decision in Pennine Care NHS Trust v HMRC [2016] UKFTT 222 (TC), in which the First-tier Tribunal found that the level of personal care at a mental health care unit did not result in it being classed as a hospital.

Further to the case, HMRC now accepts that "personal care" may go beyond a supportive and supervisory role to assist with living and may:

*Include therapeutic and clinical treatment.

*Incorporate a high level of medical treatment if it is essential to the accommodation that is being provided.

* Be provided in a treatment centre that occupies (a distinct part of) the building, provided it is used up to 95% by residents of the care home.

Suppliers may reclaim overpaid VAT incurred on supplies that would have been zero-rated under the revised policy within four years of the end of the relevant VAT period, subject to unjust enrichment and obtaining a certificate of zero-rating from the recipient.

See HMRC: Revenue and Customs Brief 2 (2017): VAT - care homes and hospitals for more information

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