Leisure, Independence, Friendship And Enablement Services Ltd v Revenue And Customs

For welfare-service VAT exemptions, the state-regulated criterion requires approval, licensing, registration or exemption from registration under a public general Act in respect of the welfare services supplied. Contractual oversight, direct payments or delegated functions under the Care Act 2014 do not satisfy that requirement. Fiscal neutrality is assessed from the typical consumer’s perspective, including the regulatory context. Statutory regulation may make otherwise similar welfare services materially different to consumers, and local-authority monitoring is not equivalent to statutory regulation. The distinction between unregulated private providers, charities and state-regulated providers is therefore valid. Regional differences caused by devolved regulation do not make the VAT legislation discriminatory.

These were appeals by Leisure, Independence, Friendship and Enablement Services Ltd and The Learning Centre (Romford) Ltd against decisions of the Upper Tribunal (Tax and Chancery Chamber). In the LIFE appeal, the Upper Tribunal held that LIFE was not state-regulated for the purposes of Item 9 and considered the fiscal-neutrality issue in [2017] UKUT 484 (TCC). In the conjoined appeal, it held that devolution did not cause a breach of fiscal neutrality in [2019] UKUT 2 (TCC).

The Upper Tribunal had allowed HMRC’s appeals from decisions of the First-tier Tribunal concerning VAT treatment of day-care services supplied to vulnerable adults. The central questions were whether LIFE was a state-regulated private welfare institution or agency and whether Item 9 unlawfully treated comparable welfare services differently, including services supplied by charities and providers in different parts of the United Kingdom.

Both appeals were dismissed. Arnold LJ gave the leading judgment. Newey LJ and Floyd LJ agreed with the outcome and the principal reasoning, subject to their different views on the possible meaning of “devoted to social wellbeing”.

1. State regulation. Notes (6) and (8) to Group 7 of Schedule 9 to the Value Added Tax Act 1994 must be read together. A private welfare institution or agency must be approved, licensed, registered or exempted from registration under a public general Act in respect of the welfare services supplied. The existence of another comprehensive regulatory regime was irrelevant to that question.
2. The relevant provisions of the Care Act 2014 did not meet that test. Section 8(2)(a) involved arranging services from another provider and section 8(2)(c) involved direct payments. Neither provision required or empowered approval or registration of the provider. Section 79(1) did not assist LIFE: there was no finding that the Council had delegated its functions to LIFE and, in any event, delegation did not amount to approval or registration. Section 79(6) did not alter that conclusion.
3. Fiscal neutrality. Applying the approach in [2011] ECR I-10947, similarity depends on the characteristics of the services, the needs of the typical consumer, comparability of use and whether differences significantly influence consumer choice. The regulatory and legal context may be relevant. The Upper Tribunal was entitled to conclude that statutory regulation of personal welfare services supplied protections and guarantees which made regulated services significantly different in consumers’ eyes. Consumer surveys or expert evidence were not generally required. Local-authority monitoring was not equivalent to statutory regulation.
4. Item 9 did not breach fiscal neutrality by distinguishing charities from unregulated private providers. Charities were subject to charitable-purpose, public-benefit and supervisory requirements, and consumers could perceive them differently from unregulated providers. Services supplied by charities and state-regulated private providers could nevertheless be treated alike. Item 9(a) was implicitly confined to charities constitutionally permitted to supply the relevant welfare services. Any possible over-inclusiveness concerning “social wellbeing” was immaterial to LIFE, whose failure to satisfy Item 9(b) could not be cured by direct effect.
5. The difference between England and Wales and the devolved nations resulted from different regulatory choices, not discrimination in Item 9. The appeals were therefore dismissed.

Newey LJ considered that Article 132(1)(g) did not require exclusive devotion to social wellbeing. Floyd LJ provisionally preferred that view, but regarded the issue as immaterial and not fully argued.

• Court of Appeal (Civil Division): Both appeals dismissed.
• Upper Tribunal (Tax and Chancery Chamber): LIFE was held not to be state-regulated and the fiscal-neutrality challenge failed in [2017] UKUT 484 (TCC). The devolution challenge also failed in [2019] UKUT 2 (TCC).
• First-tier Tribunal (Tax Chamber): The underlying decisions concerning LIFE and TLC were given in [2016] UKFTT 444 (TC) and [2017] UKFTT 492 (TC). HMRC’s appeals to the Upper Tribunal succeeded.