YMCA Birmingham & Ors v The Commissioners for HMRC

A charity’s supply of welfare services is not excluded from the Value Added Tax Act 1994 exemption merely because a local authority pays for the services and vulnerable individuals receive their benefit. The question whether services are directly connected with welfare turns on their practical performance, rather than the contractual mechanism by which they are procured.

For Item 9, a distressed person is assessed by the ordinary meaning of distressed. The provision imports no requirement of chronic, severe or long-lasting hardship. Whether a person remains distressed is ordinarily factual. Instruction includes educational guidance that develops skills through a structured support plan. It does not require compulsion and cannot be separated by a bright line from advice or information.

Four charitable YMCA bodies supplied housing-related support services under contracts with local authorities. The local authorities funded the services, while vulnerable young people received accommodation, keyworker assistance and plans intended to develop skills for independent living.

HMRC decided that the supplies were VAT-exempt welfare services. The First-tier Tribunal dismissed the charities’ appeals on 21 June 2018. The charities appealed on points of law, contending that the exemption in Item 9 of Group 7 of Schedule 9 to the Value Added Tax Act 1994 did not apply because the paying local authorities, rather than the young people, received the supplies; because the young people were not distressed; and because the services involved advice rather than instruction.

1. Appeal dismissed. The First-tier Tribunal made no error of law in holding that the housing-related support services were exempt welfare services under Item 9 of Group 7 of Schedule 9 to the Value Added Tax Act 1994.
2. Item 9 assumes a supply by the charity to its contractual counterparty. Neither Article 132(1)(g) of the VAT Directive nor Item 9 makes the identity of the person benefiting from the welfare services a condition of exemption. Reading such a restriction into the provision would improperly add words and would narrowly frustrate an exemption directed to welfare provision. The statutory requirement that services be directly connected with welfare concerns the practical reality of what is supplied, not legal technicalities of procurement. The appellants directly provided support to the vulnerable individuals referred by local authorities.
3. The First-tier Tribunal correctly applied the ordinary English meaning of distressed. The statutory context did not justify an ejusdem generis requirement that distress be severe, chronic or sustained for a significant period. The findings that the young people were homeless or soon to be homeless, were victims of circumstance and were in crisis entitled the First-tier Tribunal to find them distressed. Whether accommodation had relieved an individual’s distress was a factual question, and the evidence supported the finding that distress continued during receipt of support.
4. The proper meaning of instruction in Item 9 is educational instruction, not a command. It includes authoritative guidance and imparted knowledge. The individual plans, keyworker reviews and assistance in learning how to undertake tasks were capable of amounting to instruction, although participation and compliance were not compulsory. There is no bright-line division between instruction, advice and information; the issue is one of ordinary language evaluated on the facts.
5. Any application for costs had to be made in writing within one month of release of the decision.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the charities’ appeals and upheld the First-tier Tribunal’s conclusion that the services were exempt under Item 9 of Group 7 of Schedule 9 to the Value Added Tax Act 1994.
• First-tier Tribunal (Tax Chamber): by a decision dated 21 June 2018, dismissed four appeals against HMRC decisions that the housing-related support services were VAT-exempt welfare services.