What Is VAT Grouping and Why Does It Matter for Care Providers?
VAT grouping allows two or more entities under common control to be treated as a single taxable person for VAT purposes. The biggest benefits for care businesses have traditionally been:
- No VAT on intra-group charges (e.g., management fees or shared service costs between head offices and care homes).
- Centralized VAT filings and administration for the whole group.
- Strategic input VAT recovery for suppliers and landlords working across both taxable and exempt care activities.
HMRC’s 2025 Crackdown: What’s Changed?
Care sector VAT groupings are under the microscope after several HMRC campaigns and recent tribunal cases. Key developments include:
- Closer examination of control: HMRC is challenging groups with loosely connected entities, especially those structured mainly for VAT benefit.
- Review of VAT recovery on exempt supplies: Most residential care income is VAT-exempt, meaning VAT on shared overheads is only partially recoverable. Grouping with “taxable” entities (e.g., catering or property companies) is less likely to escape a partial exemption challenge.
- End of “VAT-only” grouping: Some groups were set up purely for VAT efficiency, but HMRC is now asking for clear commercial reasons, robust operational ties, and genuine control structures—not just shared directors.
- Scrutiny of “care structure” loopholes: Care home groups that purchased properties via a separate “OpCo/PropCo” model to maximize VAT claims are seeing more HMRC challenges on valid cost sharing and eligibility.
What’s at Stake? VAT Recovery, Cost Structures, and Administration
Old Situation | New Reality in 2025 |
|---|---|
| Easy VAT group set-up | Tougher HMRC questioning, more evidence |
| Recovery on shared costs via VAT group | Stricter partial exemption rules, less recovery |
| Little oversight of intra-group charges | Increased HMRC audits, more disputes |
Action Steps for Sector Businesses
1. Review Your VAT Groups
- Are all members still under genuine common control?
- Is every group member actively involved in the provision of care or related services?
- Document commercial reasons for grouping—not just VAT savings.
2. Reassess VAT Recovery Calculations
- Run a fresh partial exemption review for your latest structure.
- Recognize that VAT on central management, facilities, or property costs may now be split across taxable and exempt supplies, reducing recovery.
3. Engage with the OpCo/PropCo Question
- If you use an operational company (the care provider) and a property company (the owner/landlord), evidence the commercial reasons for separation beyond VAT.
- Ensure rent structures, employment, and contracts reflect genuine arms-length arrangements.
4. Prepare for More Frequent HMRC Audits
- Maintain full board meeting minutes, inter-company contracts, and correspondence showing commercial rationale for group decisions.
- Keep up-to-date with all VAT filings and respond quickly to information requests.
5. Seek Specialist Advice
- VAT rules for care settings change frequently; work with specialist advisers who understand healthcare, social care, and charity VAT regimes.
- Consider impact assessments before making structural or operational changes.
Looking Ahead: Is This the End of VAT Recovery for Care Groups?
Not quite—but it’s the end of easy gains. HMRC wants clear, sustainable group structures and will not hesitate to challenge arrangements viewed as aggressive or artificial. Care sector businesses should see VAT grouping as a risk-managed tool, not a simple tax avoidance option.
Bottom Line:
Review your group, tighten your processes, and elevate your documentation. The era of “set and forget” VAT groupings for care is over—but with strong governance, legitimate groups will continue to deliver value.
#VATGrouping #CareSector #TaxCompliance #HMRC #VAT2025
Sources: HMRC VAT Notices (700/2), Healthcare VAT Consultants, Taxation Magazine, Care Home Professional, BDO VAT Health & Social Care Guide (2025)