Care homes in the UK are largely run as private business. Where a building is constructed solely to be used as a residential care home, the first sale of that building should be zero rated for VAT. However, the first sale of a hospital building is subject to standard rate VAT.
The distinction between personal care in a care home, and medical care in a hospital can be blurred. A “hospital” which accommodates people on a long-term basis may be more accurately described as a care home for VAT purposes. Some care homes, and hospices include clinical treatment centres.
HMRC has decided that treatment centres within care homes should be treated as zero rated rather than as standard rated buildings, following the judgement in the Pennine Care case . The treatment centre must be used at least 95% by the care home residents to qualify for zero rating.
Residential care businesses and trusts, which have paid standard rate VAT on the construction of buildings which would now qualify for zero rating, can ask their supplier (normally the builder) to refund that VAT. The care business will have to provide the supplier with a certificate as detailed in section 17 of VAT Notice 708. However, such a claim can only be made for VAT paid within the last four years.