20762..
EXEMPTION – service supplied by the Appellant for the benefit of the elderly – whether supplied to the local authority / PCT or to the elderly – whether services constitute welfare services – whether within Item 9, Group 7, Schedule 9 VAT Act 1994 – yes – appeal dismissed
MANCHESTER TRIBUNAL CENTRE
AGE CONCERN LEICESTERSHIRE & RUTLAND Appellants
- and -
THE COMMISSIONERS FOR
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: LADY MITTING (Chairman)
MRS. MAJORIE KOSTICK (Member)
Sitting in public in Birmingham on 15 July 2008
Noel Tyler, VAT Consultant for the Appellant
James Puzey, counsel, instructed by the Solicitor for HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2008
DECISION
- The Appellant appeals a decision of the Respondents dated 7 June 2007 that supplies made by the Appellant are exempt as welfare services under Item 9, Group 7, Schedule 9 Value Added Tax Act 1994. The basis of the Respondents' decision was that the recipients of the services were the elderly persons of Leicestershire and Rutland and that the services provided constituted welfare services.
- We heard oral evidence from Mr. Paul O'Donnell, the finance director for the Appellant and on behalf of the Respondents from Mr. Melvin Amos, the review officer. Also put into evidence by the Respondents was an unchallenged witness statement from Ian Noel Taylor.
- It being common ground that the Appellant is a registered charity and is thus a specified supplier, it is the Appellant's case first that its supplies are not made to the elderly but to the commissioners of the services, namely Leicestershire County Council, Rutland County Council and the Primary Care Trusts of the two counties and secondly that, in any event, the nature of the services does not fall within the statutory definition of welfare services. The Appellant therefore maintains that its services should be standard-rated.
Legislation
- Article 132(1)(g) of Council Directive 2006/112/EC (formerly Article 13(A)(1)(g) of the Sixth VAT Directive) provides as follows:
Article 132:
- Member states shall exempt the following transactions:
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing…
Item 9, Group 7 of Schedule 9 to the Act exempts the supply by –
(a) a charity
(b) a state-regulated private welfare institution or agency, or
(c) a public body,
of welfare services and of goods supplied in connection with those welfare services.
Note 6 to Group 7 provides that in item 9 "welfare services" means services which are directly connected with –
(a) the provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons…
- Between July 1999 and March 2005 the Appellant entered into a number of Service Level Agreements (SLAs) with Leicestershire and Rutland County Councils and their PCTs to provide, manage and develop a range of services for the elderly within the counties. The Appellant treated those services as exempt, or as Mr. O'Donnell told us, outside the scope of VAT.
- With effect from 1 April 2005, the Appellant set up a wholly-owned subsidiary, Age Concern Leicestershire & Rutland (Welfare Services) Ltd ("the company"). By an agency agreement dated 1 April 2005 made between the Appellant and the company, the Appellant assigned the SLAs to the company and agreed to act as the agent to the company in delivering the services provided for. The company had no staff, premises or resources of its own and relied upon the Appellant to deliver the services provided for in the SLAs. The services were defined as "the provision of services to promote the relief of elderly persons in accordance with the provisions of contracts…" The nature of the services and the provision of the services were totally unaltered. The service commissioners (ie the counties and PCT) were informed by letter in March 2005 that the SLAs had been assigned to the company but added that the service would physically be provided by the same persons and in the same places as before. In effect there was no interruption to the nature or provision of the service. What altered was the tax treatment of the provision of the service. The company, not being a body specified within item 9, charged VAT on the provision of the service and the Appellant's supply to the company of staff and facilities was also viewed as a taxable supply. This arrangement, as Mr. O'Donnell agreed in evidence, would enable the Appellant to make a greater recovery of input tax.
- The arrangement was initially looked at by the Respondents with a view to establishing whether or not it was abusive and Mr. Taylor and Mr. Amos had a number of meetings with the Appellant and entered into protracted correspondence. The abuse enquiry was not followed up but argument ensued about the nature of the services and the identity of the recipients. By letter dated 9 February 2007, Mr. Tyler maintained that Age Concern could be seen as supplying a package of services to the local authorities and PCTs to facilitate them in making their own supplies of welfare services. In such a case the Appellant would be making no supply to the elderly and the services should in any event therefore have been standard-rated. This argument was rejected by the Commissioners in their letter of 26 March 2007, Mr. Amos maintaining that although payment for the services was received from the local authorities and PCTs, it was clear from the agreements that it was the Appellant (the company) who were responsible for and delivered the services directly to the elderly and their carers.
- By letter dated 29 March 2007, Mr. Tyler sought a reconsideration of this decision. In this letter he set out his understanding of the facts, namely that the county councils had a statutory obligation to provide a range of welfare services to the elderly within the county and that the counties had entered into Service Level Agreements with Age Concern to provide those services. The services were therefore provided contractually to the local authorities as principals. Mr. Tyler concluded his understanding of the agreed facts with the following statement:
"v) The services being provided in this case, under contract between Age Concern Leicestershire & Rutland (Welfare Services) Ltd and the Local Authority, are designed to "promote the physical or mental welfare" of elderly persons. As such they qualify as welfare services under the provisions of Note 6 to Group 7 of Schedule 9 to the Value Added Tax Act 1994 by the party providing them contractually to the elderly persons themselves – ie the Local Authority."
- This argument was duly rejected by Mr. Amos, his letter becoming the decision under appeal. Further correspondence ensued and by letter dated 27 Februaury 2008, Mr. Tyler confirmed that it was the Appellant's contention that "the supplies made by it were always made to the commissioners of the services and not to the users of the services themselves. As such the charity contends that its supplies were at no time of welfare services…". Mr. Tyler went on in this letter to put forward further argument that as regards the Day Centre service, the supply of a meal was a standard-rated supply of catering, separate from the supply of welfare services. This argument was also rejected by Mr. Amos whose view it was that the charity was contracted to provide a complete package of services that could not and should not be split up into component parts.
- Until April 2008 it appeared that the Appellant and Mr. Tyler had always accepted that what was being provided was welfare services and that the issue between the parties was to whom the supply was made. However by letter dated 1 April 2008, Mr. Tyler raised a further argument that what was in fact being provided did not amount to "welfare services" within the statutory definition. The services provided did not amount to "care" but even if they did they were not designed to promote the physical and mental welfare of the recipients. This argument also was rejected by Mr. Amos.
The Service Level Agreements
- The Appellant entered into a number of such agreements of which a handful of specimen agreements were put before us. We were first referred to a "Service Agreement (day services)" made between the Appellant and Leicestershire County Council. A detailed schedule set out the service objectives and requirements. The definition and objectives were set out in the following terms:
"3. Definition and aims of Day Care Services:
Day Care should be provided for a minimum of 4 hours, from arrival at day centre to departure, not less than once a week and include a main meal, light refreshment and a programme of activities designed to stimulate and enhance the well-being of its service users.
Day Care funded by the Council will be provided for people who require assistance with essential personal care tasks (in accordance with the eligibility criteria as defined in the Councils' Social Services Practice Guidance) and who will in addition benefit from having these needs met in a group setting away from home.
Provision will be targeted at people with more dependent needs.
- Service Objectives:-
- To stimulate and enhance independence for those with essential personal care needs. In particular to encourage attendees to relearn skills and improve their self-care abilities
- To provide support to carers
- To provide responsive, high quality, sensitive care for older people"
The service requirement set out a provision for "older people who are frail or have mental health problems"; a service for older people with learning disabilities; the need for a range of stimulating and appropriate activities which should be "designed to promote independence and to re-learn lost skills to enhance the older person's self care abilities". The requirements for the quality of meals etc. was also set out. The agreement went on to say that referrals for day care provision had to come from the council's Social Services department who would carry out detailed and specialist assessments. The facility was not open to just anyone.
- The second agreement to which we were referred was between the Appellant and Rutland County Council Social Services and Housing department. The service aim was said to be to "improve the quality of life for older people, making older age a fulfilling and enjoyable experience". The services to be provided fell into two sections, namely day services and preventative services. There was no detailed specification but the day services were generally aimed at promoting independence, quality of life, confidence, help in personal care tasks and support for carers. The preventative services were listed as including a provision of luncheon clubs, ageing well activities, information and carer support.
- The third agreement to which we were referred was a Mental Health Services Agreement with the Leicestershire & Rutland PCT. It contained no specification of services required.
- The fourth agreement was a "commissioning agreement" with Leicestershire County Council Social Services department. The services to be provided were listed as information, Luncheon Clubs, mental health, pathfinder and direct payments. Each was defined in detail. The information service was aimed at providing the elderly and their carers with appropriate, up to date information adequate to their needs, enabling them to find out about the services available to themselves and their carers and informing about the availability of support. There was provision for home visits to the housebound and provided that the service should enable the older person to remain in the community for as long as feasible. The Luncheon Clubs' stated aims were to provide older people with nutritionally balanced meals, to provide training and advice and to enable the socially isolated to meet with their peers for social interaction. The service was said to be for "vulnerable older people". The Community Mental Health Service was aimed at enabling older people with mental health problems to experience a good quality of life in their own communities and to support the carers. The Pathfinder Service was aimed at enabling older people to reintegrate into their local community and to enable carers in an emergency to receive support in the form of a sitting service. The service included the assistance of older people with mental health problems with non-personal daily living tasks and assessing the daily living experience of the elderly and reporting back. Again access to the scheme was through referral. The Direct Payments Service was aimed at increasing the take-up of direct payments among older people and carers. Again access to the scheme was through referral.
- The fifth agreement to which we were referred was with Leicestershire County Council Social Services department and was stated to be "development of services for older people from minority ethnic communities". There was no detailed specification of what was to be provided but the scheme was said to be to provide a framework for the provision, management and development of services for older people from minority ethnic communities.
- The descriptions of the services which we have set out above were taken directly from the Service Level Agreements themselves. We were referred by Mr. Tyler to the Appellant's current website, which sets out a number of services offered by the Appellant. There was a description of a "day break scheme" designed to "meet the needs of older people living in rural locations for whom traditional day care would be inappropriate". An information and advice scheme operating centrally was also advertised. There was a site for day centres offering "new friendships, entertainment and companionship for people who are sometimes house-bound and socially isolated." The day centres were said to provide transport and a meal. There was a befriending scheme for lonely and socially isolated elderly people and an advocacy scheme for elderly people who needed support or representation in given circumstances. Finally, there was a range of services for elderly people with mental health problems.
Case law
- We were referred by the parties to the following cases:
Watford & District Old People's Housing Association v. CCE 15660
Card Protection Plan Ltd. v. CCE [1999] STC 270
Expert Witness Institute v. CCE [2001] EWCA CIV 1882
CHMRC v. The Board Of Governors Of The Robert Gordon University [2008] CSIH 22
College Of Estate Management v. HMRC [2005] UKHL 62
Parents & Children Together v. CCE 001146
Submissions
- Mr. Tyler's first submission was that the supplies were not made to the elderly persons of Leicestershire and Rutland but to the commissioners of the services, namely the county councils and Primary Care Trusts in circumstances where the Appellant had no control over the situation of the service user. The Service Level Agreements provided that the Appellant should provide designated services to the commissioners in return for a consideration on a principal to principal basis. Mr. Tyler submitted that a supply cannot be a supply of welfare services if it is not contractually supplied to the recipient of the supply. In this case, where the contractual relationship lay between the Appellant and the commissioners, it could only be to the commissioners that the supply was made. In support of his contention Mr. Tyler referred us to the case of Parents & Children Together ("PACT").
- Mr. Tyler's second contention was that the services provided did not amount in themselves to welfare services. In support of this contention we were referred to the case of Watford. In Watford, the Appellant, under a contract with the local Council, provided miscellaneous household services to certain categories of people. The services contracted for varied enormously from house cleaning and washing up to help with collecting pensions and prescriptions and dealing with soiled laundry. The services did not comprise the main specialist care for the users but a necessary part of it. Paragraph 10 of the tribunal's decision reads as follows:
"Looked at on their own, the type of services provided by the Appellant do not at first sight appear to be directly connected with the provision of care. On this basis, they could easily be supplied to people who find it convenient to have some home help. However, contrary to the Commissioners' submission, we do not think that we should look at the services in isolation and ignore the type of person to whom they are supplied. "Welfare services" are defined to mean services which are directly connected with the provision of care designed to promote the physical or mental welfare of elderly persons. It is only by considering the type of recipient that one can determine what services qualify. The services are provided under contract with the Council to people in bands 1 and 2, which means that they are people for whom there is either current or imminent substantial risk to the health and welfare of the person, and who are unable to provide even basic self care or have major difficulty in safely carrying out some key daily living tasks. For such people the services provided by the Appellant are not an additional help but are either part of the necessary care which the people need in order to continue to live at home, or they are so directly connected with it that they fall within the terms of the statutory provision. Accordingly, in our view, the services which are supplied under contract with the Council to persons in bands 1 and 2 are exempt."
Mr. Tyler submitted that not every provision of services which could be of benefit to elderly persons was sufficient to qualify for the welfare service exemption. It was, argued Mr. Tyler, an absolute requirement that the recipients of the service should be as needy as set out by the tribunal in paragraph 10. It was necessary that the tribunal should look at the recipients of the services as well as the nature of the services.
- However, Mr. Tyler also submitted that even in themselves the services would not amount to welfare services. He took his argument from the website descriptions of the services. He argued that the services were very general in nature and could not amount to "care". The recipients generally had no special needs and the services were really aimed at the active elderly who required some assistance and some social interaction. Mr. Tyler stressed the fact that the Appellant had no control over those attending and no power to select them.
- Mr. Tyler went on to argue that if the tribunal were to find that the Appellant was supplying welfare services then each of the supplies should be considered independently as none fulfilled the criteria of principal or ancillary services under Card Protection Plan. It was Mr. Tyler's further contention that even if the tribunal considered that the supply of day care was properly a supply of welfare services then the provision of a meal at the day care centre was a separate supply of catering. The supply of a meal was not essential for the day care facilities to be effective and the meal could not therefore be considered to be ancillary to the supply of the day care centre facilities. Additionally on both a cost and a time basis, the meal was a large constituent element.
- Mr. Puzey submitted that Item 9 and Note 6 imposed no requirement as to whom the supply had to be made to, merely that the services were "directly connected…". The local authorities could not be recipients of welfare in the sense of being the beneficiary of the service but there was no requirement that they should be. It was perfectly possible to provide a service to the benefit of one party but pursuant to a contract with another, for example, the provision of private school education pursuant to a contract between parent and school. Mr. Puzey went on to argue that as what the Appellant supplies and what is received by the elderly is exactly the same thing, unaltered by either the interposition of the company or the local authority, if it is welfare services when supplied by the latter it must be welfare services when supplied by the Appellant.
- Mr. Puzey submitted that there was no requirement for the supplies to be forced into principal or ancillary categories. If, on a true analysis, a supply of services is made which comprises a number of distinct elements which are indissociable then there can be a composite supply and not multiple supplies (College Of Estate Management). It was in Mr. Puzey's submission erroneous to treat Watford as having imposed a requirement of a particular level of need in recipients. This is not borne out by the statute.
Conclusions
- It was Mr. Tyler's submission that pursuant to the contract between the Appellant and the commissioners of the services, it was to the commissioners that the Appellant made its supply and the onward supply to the recipients was made by the commissioners. To whom therefore was the supply made? The commissioners have a statutory obligation to provide welfare services to the elderly. In Leicestershire and Rutland, these services are supplied by the Appellant, pursuant to a series of contracts or Service Level Agreements entered into between the Appellant and the authorities. There is no contract between the Appellant and the recipients but indeed neither is there between the authorities and the recipients. However, the statute imposes no requirement for a contractual relationship – all that is required is that there should be a supply of welfare services. It does not have to be supplied pursuant to a contract between provider and recipient. It is not uncommon for services to be provided to one party pursuant to a contract with another. Mr. Tyler's dependence on PACT is not, we feel, useful. In PACT, the argument centred on whether the supply of services by PACT pursuant to a contract with prospective adopters, was an exempt supply of welfare services as being for the protection of children. The tribunal's conclusion is summed up in paragraph 21 of that decision in the following terms:
"The services are made to the prospective adopters; they are designed to assess the suitability of the prospective adopters for inter-country adoption and, if suitable, to enable them to obtain certificates of eligibility from the Department of Health. Although the end result of PACT's service, coupled with the prospective adopter's actual adoption of a child, may be the provision of protection for that child, this does not, we think, mean that PACT's contractual services are "directly connected with" that state of protection or even "closely linked to" it."
Certainly, Mr. Tyler is right when he says that the tribunal referred to the contract between the provider and the parents. However the decision was based not on the existence of the contract but on the fact that in every sense the services were physically and actually supplied to the prospective parents and in no way directly to the children. This is not analogous to the situation which we have where the services are provided to the elderly. We therefore reject Mr. Tyler's first argument and conclude that the services are provided by the Appellant to the end recipients.
- Should the supplies be treated as one single supply or split up? In answering this question we take our guidance from The College Of Estate Management which in turn cited Card Protection Plan. The principles which emerge are that there should not be an "over-zealous dissection" and that a supply which comprises a single service from an economic point of view should not be artificially split. One has to assess the essential purpose of the transaction by ascertaining its essential features. It is perfectly possible for there to still be one single supply which comprises more than one element, none of which can be singled out as the dominant or principal element. We were referred to five specimen Agreements but we understand that there are a number of other similar such. Each Agreement was a stand alone agreement with a specified time for which it was to run, a specified level of service and a specified consideration. Each separate Agreement is therefore a separate supply and the VAT status of that supply should be identified by looking at what is contracted for in that Agreement. However the question is then raised as to whether or not there should be any further split within the Agreement between the various services required. We conclude that there is no justification for any such split. Although the services are many and varied they naturally fall together in one package and it would be utterly artificial and impractical to try and separate individual services out. Each Agreement comprises a bundle of features that together make up the particular care service required. The individual components are not readily divisible and are not intended to be treated separately. Mr. Tyler's main argument was centred round the provision of a meal in the day services agreement with Leicestershire County Council. We do not see the provision of the meal as a separate supply in any way but part of the service which the attendees will receive during their fours hours at the Centre. As quoted above, the aim of the service was to provide a person for a minimum of four hours per day, not less than once a week, with a programme of activities designed to stimulate and enhance their wellbeing and a main meal and light refreshment. Not a single element of that is readily divisible from any other. We find this equally to be the case with the Luncheon Clubs included in the Commissioning Agreement with Leicestershire County Council Social Services department. In that case although every element is clearly and separately defined and the specific requirements set out, taken together they form one package, one service and again are in our view elements of one composite supply. We therefore find that within each Service Level Agreement, the individual elements should be treated together as one single supply of services.
- What is the nature of the service provided? The statute exempts the supply of welfare services to the elderly, sick, distressed or disabled. This is not a cumulative description but a set of alternatives. Mr. Tyler, placing reliance on Watford, argues that it is not sufficient for a recipient merely to be elderly but there is an absolute requirement for something over and above that before the recipient can qualify and the lack of such an absolute requirement would be fatal to the application of the exemption. He invited us to adopt as a necessity in this case the criteria which were helpful to that tribunal in considering the matter before them. The problem which the tribunal had in Watford was that the nature of the services was described as "help with household tasks". Not only could these services have been supplied to absolutely anyone but looked at in their own light in many cases they could not possibly be described as "care", for example house cleaning, washing up, laundry or ironing. To solve their dilemma, the tribunal looked at the type of recipient and it is in that context that the tribunal set out the condition of the recipients. The tribunal was not seeking, in our view, to qualify who should be entitled to receive a service before it could be defined as a welfare service or to add additional criteria to be applied. On a proper interpretation of the statute, if what is supplied falls within the provision of "care, treatment or instruction designed to promote the physical or mental welfare…" then it will be an exempt welfare service – if supplied to the elderly or the sick… It is not necessary to find that the elderly have to have any further problems. It is therefore necessary to look at what is actually being provided.
- One point which Mr. Tyler raised concerned the position of carers. It was his contention that where the SLAs provided for support or assistance to the carers this could never be categorised as a welfare service as the supply has to be to the elderly person themselves. Carers, when acting in that role, hold a very close and intimate relationship with their charge. Everything they do in their role as carer is for the direct and sole benefit of the person for whom they're caring. As such anything which is done for the carer must in our view be done for the person being cared for. Any support or help or information which is given to the carer is passed on directly or immediately to the person being cared for. As such we believe that where the Service Level Agreements provide for a service to the carer, that service is certainly capable of being "directly connected with" the provision of care for the elderly.
- What is the nature of the service provided? The evidence of the services provided was, by agreement between the parties, put to us in two forms. One was the website and the other the SLAs themselves. We were told that the services provided now were identical to those which have been provided throughout and that the website, although prepared very recently, would be an accurate reflection of the services provided under the agreements. We note however that certain of the services on the websites are described under headings which do not appear in the SLAs, for example a Daybreak Service and a Befriending Scheme. The website is also, of necessity, a very brief summary in very "user friendly" language of the services provided. We see no reason to look further than the SLAs for what is provided as they specify precisely what is expected of the Appellant under the terms of the agreements. There is no need for further amplification from the website. The first feature to be noted in the Agreements is the clarity and detail of what is to be provided. The overall aims and the desired outcomes are set out and speak in terms of enhancing and improving the quality of life; of providing appropriate, accurate and up to date information to older people and their carers; the stimulation and enhancement of independence; the relearning of skills; the improvement of self-care abilities; of making old age a fulfilling and enjoyable experience; to enabling the socially isolated to meet with their peers for social interaction; the provision of nutritionally balanced meals; the reintegration of an elderly person into the local community; the giving of support in an emergency. All this has to be provided in a specifically targeting and focused fashion. It has to be tailored to individual needs and has to be evaluated. Mr. Tyler contended that very little of what is provided is at a sufficient level to constitute "care". However we do not see it that way. Certainly the service is provided in the main in a social environment but that cannot and must not detract from the serious and specific services and the need which the elderly have for them. All the above aims can and should be seen a promoting the physical and mental welfare of the elderly.
- The second striking feature is that in almost every case, the recipient of any of the services has to be assessed for eligibility. For the Day Centres, the website reiterates what is in the agreements – that there must be an assessment. These are not services open to anyone who wants to drop in for a meal and a chat. The recipient has to have been examined and assessed as being in need. As Mr. Puzey submitted, the services described in the agreements are those of welfare in the sense of care in a practical, structured and caring environment.
- The only services which may appear not to fall immediately into the category of care are the Direct Payment Service and the Information Service but these we believe fall squarely within the definition of "instruction" and is clearly instruction aimed at promoting the physical and mental welfare of the elderly.
- It is interesting that until April 2008, Mr. Tyler throughout his correspondence appeared to accept that the services in themselves constituted welfare services. What however, we find more compelling is that the content of the agency agreements defined the services provided as being to promote the relief of elderly persons in accordance with the SLAs. It is difficult to imagine anything that could come closer to the statutory definition of promoting the welfare of the elderly.
- For all these reasons we find that the services provided by the Appellant pursuant to the agreements entered into with the local authorities and PCTs constitute supplies of welfare services and are thus exempt from VAT. The services are supplied by a charity to the elderly and are directly connected with the provision of care, treatment or instruction "designed to promote the physical or mental wellbeing of the elderly…"
- One further point arose in that Mr. Tyler contended that if the tribunal were to find, as we have done, that the services supplied are an exempt supply of welfare services, then in relation to the day care services agreement with Leicestershire County Council, as "a charge agreed by the council will be levied towards the cost of the midday meal" then article 134 of the sixth Directive comes into play. This provides that "the supply of services or goods shall not be granted exemption if it is not essential to the transactions exempted and / or its basic purpose is to obtain additional income for the organisation by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT." We heard virtually no argument on this. Although the agreement states that the charge "will be levied" we do not know whether this is means tested or whether it is mandatory. We have no idea at what level it is set and whether everyone pays the same level. It refers to it as being "toward the cost" of the meal from which we assume that it is only a contribution and is not intended to cover the entire cost. The provision of a meal also appears to us to be a natural part of the daycare facility and is not aimed at securing additional income. Without far more evidence, we cannot make any finding that this falls within article 134 and this argument is therefore rejected.
- The appeal therefore fails and is dismissed. The Respondents made no application for costs and no order is made.
MAN/2007/0711
Lady Mitting
CHAIRMAN
Release Date: 6 August 2008
