Care Home Commercial Finance: When do care homes need to pay VAT?

Care homes offer various services, provided by private companies or state-run homes owned by local authorities. These services are classed as welfare services, detailed in VAT Notice 701/2, and summarised as follows

Care Home Commercial Finance: Welfare Services and VAT Loan Solutions

Welfare services include:

• Care, treatment, or instruction promoting the physical or mental welfare of elderly, sick, distressed, or disabled people.
• Care or protection of children and young people.
• Spiritual welfare is provided by religious institutions during instruction or retreats (not primarily for recreation or holidays).

Are Care Homes Exempt from VAT?

Most care provided by regulated care homes (public and private) is VAT-exempt, though specific rules apply to each type of welfare service.

While care itself is exempt, some care homes earn additional income from goods like toiletries, newspapers, or confectionery, which may also be exempt. Partial exemption rules mean care homes must work with VAT professionals to ensure compliance. For example:

• Meals and refreshments provided as part of care services without extra charges.
• Bandages and medical supplies used during care.
• Items like books or toys provided by playgroups in connection with care.

When Must Care Homes Register for VAT?

Care homes must register for VAT if their taxable threshold exceeds £90,000. Most supplies are exempt, so many do not need to register. Providers making taxable supplies below the threshold can choose to register voluntarily.

Paying VAT Bills

If non-exempt profits exceed £90,000, VAT is payable on the difference between VAT charged to customers and VAT paid to suppliers. Partially exempt businesses can recover some input tax within HMRC’s de minimis rule.

Avoiding late payment

As a result, some welfare service providers will be liable for VAT, which will need to be paid by the deadline imposed by HMRC to avoid late payment penalties. VAT returns will show the payment deadline date, but you can also use the Government’s VAT deadline calculator.

In the 2024 autumn budget, an extra £600m in funding to local authorities for adult and children’s social care was dismissed by industry groups, who expected that amount to be ‘wiped out’ by increases to minimum wage and additional staffing costs. Representing adult social care providers, Care England expressed a genuine concern that without further support, the sector was in “unprecedented danger” and the closure of services that were no longer viable was likely.

While careful financial planning can help avoid difficult times, we understand that sometimes things just don’t go to plan. An unexpected – or even routine – VAT bill can throw your business off course and create an unwelcome cash flow pinch point that prevents you from growing your business or even simply surviving. That’s why considering a short-term loan or business finance can help ease the pressure of overheads and keep you on track.

Short-term loan to finance your VAT bill

When working capital volumes don’t permit, practices may need to consider alternative sources to fulfil these costs. Whether you would like to seek assistance for your VAT bill, or would prefer to cover staffing costs with a working capital loan, White Oak UK can help.

With our VAT loan service, you can choose for payments to be made directly to HMRC on your behalf or have the funds sent to the relevant account. Ultimately, a loan frees up capital for other requirements. We spread the cost over 3 months and offer a quarterly facility to meet these ongoing costs.

Get a free care home commercial finance quote for your tax bill

We pride ourselves on offering fast, flexible and tailor-made finance solutions for businesses in the healthcare sector. Find out how VAT loans can benefit your business by calling us on 01244 527300, emailing admin@whiteoakuk.com or visiting our online chat to speak to a member of our team.

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