Foundations Monthly Webinar, 21 June 2022
Create Contracts and Funding
Home Improvement Agencies rely on contracts and fee income to fund their services. This section covers some of the issues you will need to be aware of if you manage a HIA or Handyperson Service.
VAT and Agency Fees
In 2003, as Home Improvement Agency Services (HIAs) were placed within the Supporting People programme, Foundations issued an Advice Note on VAT. The purpose of that note was to clarify the position of HIAs around their liabilities for VAT from that time. The advice note drew upon:
- HM Revenue and Customs (HMRC) and the Communities and Local Government’s (CLG) joint guidance to help determine whether VAT is chargeable on a Supporting People contract contained within The Interim Financial Package (chapter 1, pp 55-59) published by the CLG in June 2002
- The joint National Housing Federation/SITRA document, “Supporting People and VAT”, issued August 2002
- Subsequent correspondence between Foundations and HMRC over specific issues for HIA services
Since 2003 we have received little information that has caused us to change our view on the efficacy of that Advice Note. Much of what follows below is an updated version of the content of the earlier document.
Joint HMRC and MHCLG Guidance
This guidance (opens a new window) sets three conditions to be met in order for a HIA to exempt its services from VAT.
All three conditions must prevail:
- The Status of the Service Recipients – must be “…elderly, sick, distressed or disabled persons”
- The Status of the Service Provider must be a Local Authority or have Charitable Status. In order to have Charitable status, an organisation must be:
Registered with the Charity Commissioners ORRegistered as an Industrial or Provident Society under the 1965 Act and established for charitable purposes ORRegistered under the Friendly Societies Act of 1974 and established for charitable purposes ORRecognised as a charitable organisation by the Inland Revenue (only applicable in Scotland and Northern Ireland)
- The service provided must be an exempt activity. In order for the service to be seen as exempt it must pass two tests:
- If the service provided meets the above criteria but is one a person would normally be expected to do for themselves (such as making financial arrangements, liaising with builders, obtaining quotes, supervising work) then the person must be assessed as being unable to do this themselves “…safely, adequately or without significant pain or discomfort”. An appropriately trained or experienced person must carry out such an assessment. For a HIA this person would be the caseworker. This assessment will normally take place during the initial visit by the caseworker in the client’s home.
- It should be a welfare service which is directly connected with the “provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons”. The example given of exempt activities that best encompasses HIA services is “support or instruction designed to develop or sustain a person’s capacity to live independently in the community”. Specifically for a HIA this would include home visiting, advice on benefits and welfare services and support to cope with the stress of building work.
The questions on a standard HIA assessment form about the client’s levels of disability to perform various tasks can be used to inform this assessment.
What is the VAT status of your Contract?
If all the above conditions are met, i.e.
- the service provider is within the exempt categories
- the service recipient is assessed as vulnerable
- the service is an exempt welfare one
then HIAs should be able to claim exemption from VAT on their contract with Local Authorities.
HIAs services are typically a package of agreed support measures. This package may involve a service which would not normally be seen as exempt for VAT purposes (for example drawing up of plans, building work schedules).
In this case, the advice in The Interim Financial Package referred to above states that:
“Where a supply consists of more than one element…this may form a single supply for VAT purposes. There is a single supply for VAT purposes where one or more of the elements of the service are regarded as constituting the principal service while one or more elements are regarded as ancillary services. A service is ancillary if it does not constitute for customers an aim in itself, but a means of enjoying better the principal service. In such cases the VAT liability of the whole supply follows that of the predominant element. Where the predominant element of a single supply is VAT exempt support services, the whole supply may be VAT exempt”. (Chapter 1, p.56)
Thus to be VAT exempt, the service specified under your contract must be provided directly by the HIA as a single package of support within an agreed timeframe, and the support and advice element must be the main part of the service provided.
What about VAT on Fees?
Although the guidance refers to VAT and a Supporting People / Local Authority contract, it is also useful when deciding whether HIAs should charge VAT on fees.
Fees on grants from local authorities are regulated by the Regulatory Reform (Housing Assistance) (England and Wales) Order 2002 (S.I. 2002/1860). This Order provides for a much more flexible approach to the funding of repairs, improvements, or adaptations, and the assistance to people in accessing those funds.
Fees are still normally permitted by local housing authorities for a range of services. Some of these services fall within the definition of support/advice, which can be a VAT exempt activity, e.g.
- Assistance in completing forms
- Advice on financing the cost of the relevant works that are not met by grant
- Advice on contracts
Some services charged for in the grant fee would normally be deemed as being subject to VAT (e.g. drawing up of plans). However, as described above, VAT liability on a service provided as a single composite supply will be charged on the principal activity of the package. Where this is advice and support the whole service may be VAT exempt.
What about Handyperson Services?
Handyperson Services are a building activity and will attract VAT if charged for, whatever the status of the provider or service recipient.
What does this all me for me and my situation?
Some HIAs charge VAT for their services and some do not, some charge for only elements of their service, the picture is very mixed. A number reviewed their situation in 2003 and changed their position. As recently as 2016 a major provider of HIA services won a decision from their local HMRC Regional Office that acknowledged the exemption of the service from paying VAT. However, this may not always be the case. For instance a HIA may not have the staffing for support to be its main activity. If:
- you restrict your services to the preparation of plans, schedules of work and supervision of works
- you do not carry out an assessment of need
- the service user is not vulnerable but has been directed to use the service by the local authority as a means of accessing a grant
then clearly there can be no VAT exemption as the service provided is not a welfare service.
This is an advice note, not definitive guidance. HMRC are clear that in case of doubt you must seek clarification with a tax advisor.