Care providers that have implemented VAT planning strategies involving VAT Group registrations may now need to seek further specialist advice.

This follows the publication of HMRC Revenue and Customs Brief 2 (2025) and Spotlight 70, which signal a significant change in HMRC’s approach.

According to the brief, HMRC intend to refuse new VAT Group registration applications that involve certain care sector structures and may also review and potentially dismantle existing VAT Groups they consider non-compliant.

The arrangements under scrutiny typically involve care services being delivered by a regulated care provider, allowing those services to be VAT exempt, while an associated, unregulated company (not registered with the Care Quality Commission) is part of the same VAT Group.

This associated company would invoice local authorities or NHS Integrated Care Boards with VAT, which the public bodies can recover. This setup, in theory, enabled VAT recovery on costs directly linked to those supplies, and possibly on a portion of shared costs.

Although some advisors have previously suggested HMRC had informally accepted this structure, there is no clear record of official approval. It is likely that such arrangements should always have been disclosed to HMRC.

The rationale behind the scheme appears to conflict with the policy intention behind VAT exemption for care services, particularly where it results in splitting elements of a single supply across regulated and unregulated entities.

HMRC is now taking a firm stance and has made its opposition to this planning approach clear. Care providers currently using such VAT Group structures are strongly advised to seek professional advice on how to unwind these arrangements.

If you need support or guidance regarding this issue, or VAT matters in the care sector more broadly, please contact our specialist VAT Team.