Category: Taxation

Gerald Edelman helps childcare business defeat HMRC at VAT tribunal

20 Nov 2019

A childcare business has won a VAT tribunal against HMRC, saving the business six figures in tax. The case was supported by Gerald Edelman.

The Ofsted registered business cares for children after-school, during the holidays and teaches sport. The investigation occurred because, despite HMRC agreeing that the after-school clubs were VAT exempt and the sports training was taxable at the standard rate, it disagreed over the VAT treatment of the holiday camps. HMRC ruled that these were activity-based events and not childcare, which meant that the income was taxable at 20% rather than VAT exempt. However, the business and Gerald Edelman felt that the principal activity was childcare, and the care was no different from the after-school clubs. 

All parties agreed that the holiday camps represented a single supply of services with one VAT treatment, but the parties disagreed over the VAT liability of those supplies. 

At the tribunal, the judge agreed with the client that the pricing structure for the after-school clubs and holiday activities was similar. He also agreed that the law should not prejudice tax treatment on the basis that the provider made the care interesting for the children. The judge therefore agreed the predominant element of the service was one of childcare and therefore that income was VAT exempt. 

Gerald Edelman’s VAT partner, Richard Staunton, said “it is always satisfying to witness a client win at a tribunal, but this particular case was, to me, always very clear; the predominant activity was caring for children in the school holidays. While a tribunal represents a risk to the client because of the cost and uncertainty of the result, this case highlights that it can pay to challenge HMRC when you are confident of the case. When discussing tribunals with clients, I always explain the pros and cons and give what I hope is a balanced view of success. I think the lesson here is that if you have a good case, do not be put off by HMRC’s approach.

Interestingly, this case breaks from previous cases that have been won by HMRC, which is important because (in my opinion) it draws a line, defining when school camps can rightfully take advantage of beneficial VAT treatment. This will relieve the burden of tax where there is childcare.”

The Gerald Edelman VAT team have a great deal of experience in reviews, Alternative Dispute Resolutions meetings and both first tier and upper tier tribunals with an excellent success rate.

Gerald Edelman supports clients that are undergoing VAT disputes with HMRC, or just require good quality VAT advice. The team can be contacted at VAT@geraldedelman.com.
 

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