HMRC Vs Cheshire Centre for Independent Living (CIL)

VAT Exemption on Provision of Payroll Service – does this fall under the exemption in the VAT Act 1994

In a recent first tier tribunal case Cheshire CIL was in dispute with HMRC over the VAT treatment of charges made to disabled people for the running of a payroll service.  The judge found in favour of Cheshire CIL and decided the service was “closely linked to welfare” and as such fell under the welfare services exemption in Schedule 9 Group 7 Item 9 VATA 1994.


Many disabled people may need a carer and they are encouraged to engage directly with their carer, so they become an employer.  Cheshire CIL and other charities get involved in a number of ways and one of which is to offer to manage the payroll on behalf of the disabled person for their carer.  In most case this means running a payroll service for just one employee so charities such as Cheshire CIL will do this on behalf of numerous disabled people as well as managing their direct payments.  In these cases, as a consequence of the disability of the customer, extra guidance and help is needed. So this is not a standard payroll service.  It is the charges made for this payroll service that are at issue in this case.  HMRC said the supplies were standard rated, whereas the charity says they are exempt as a supply closely linked to welfare. 

The first-tier tribunal decided in favour of Cheshire CIL.

Basis for decision

The charity’s argument was that in this case you should not seek only to assess the objective content of a service, divorced from the capacities of its recipient, but should consider what the service means to that recipient.  It is the nature of the need that determines if it is welfare.  They argued the exemption applies solely to charities making supplies to people in certain special classes which denote some form of social security aspect.  The tribunal accepted this.

The tribunal accepted the view that, without the payroll service, the disabled user would not have the capacity to engage the carer.  If charged VAT for the service, the user’s benefits payment would be reduced by the VAT charge leaving them less to use to pay for the carer’s time, thus reducing the level of welfare.  It also accepted that the service was only relevant as a result of the need for care services and was “closely linked” with welfare activity.  It merely better enabled enjoyment of the supply of welfare by the carer, which (HMRC agreed) was, in itself, an exempt welfare service.  The intention behind the welfare exemption was served by exempting this service, as it was part and parcel of the care provision.

The tribunal agreed that the service was ‘ancillary’ to the welfare supply in the manner discussed above, to give a basis for the exemption.

Going forward

The judgement was handed down on 3rd June 2019 and leave of appeal was granted to HMRC who have 56 days to appeal against the decision.

Further Advice

If you would like to discuss this article in more detail or you would like to speak with a member of our team, please on 01772 821021 to be put in contact with a member of our Specialist VAT Advisers team.

Student loans and postgraduate loans 2019/20 threshold and rates

As we are approaching month 3 of the 2019/20 tax year a small reminder of the thresholds and rates for student loans and the recently introduced postgraduate loans may be of some benefit.

Student Loan Threshold and rates

Student Loan Plan 1 threshold is £18,935

Student Loan Plan 2 threshold is £25,725

Both plan 1 and plan 2 repayments are calculated at 9% of the income above the threshold. If an employee earns £1750 a month and is on Plan 1 then the repayment amount will be £15.00 as the amount is always rounded down to the nearest pound.

Postgraduate Loan Threshold and rates

Postgraduate Loan threshold is £21,000

Postgraduate Loan repayments are calculated at 6% of the income above the threshold. If an employee earns £2000 a month then this is £250 over the monthly threshold, therefore, the repayment amount will be £15.

An employee may have to repay a Student Loan Plan 1 or Plan 2 at the same time as a Postgraduate Loan. If this is the case, then they will pay 15% of the amount they earn over the thresholds.

HMRC will send either a paper notice or an electronic notice to inform employers that they need to begin to take deductions. The amounts taken from the employee will be submitted to HMRC via the Full Payment Submission every pay period.

The payments need to be made to HMRC by the 19th of the following month if paying by cheque, or the 22nd of the following month if paying electronically, along with any tax and national insurance liabilities that may be due. For example, the April pay run deductions need to be paid over to HMRC by the19th or the 22nd of May.

If you have any questions regarding the threshold and rates for the 2019/2020 tax year then please contact Emma Mahoney, or alternatively phone 01772 840414 to speak to our payroll team.

Tracey Simpson

Professional: Tracey has worked in the payroll profession for almost 20 years, starting in industry and running a small company payroll alongside other administrative tasks. Tracey changed course and having enjoyed the world of payroll, moved into Practice in 1999. Tracey joined Moore and Smalley in July 2013, in the position of Deputy Payroll Manager and became Payroll Compliance Services Manager in April 2015 and then became Payroll Compliance Services Director in 2018. During Tracey’s career there have been many changes and payroll has now become a truly recognised profession. Tracey gained her Foundation in Payroll Administration in April 2002 and studied further to gain her Diploma in Payroll Management in October 2003 with the Chartered Institute of Payroll Professionals, and has been a member of the organisation ever since. Tracey is responsible for a team of 19 Payroll Professionals over 2 locations, who share her passion in providing an excellent service to our clients.

Personal: Tracey has recently taken up SUP (Stand up Paddle Boarding), spending time on a lake or sea. Tracey enjoys sunny and relaxing holidays abroad, particularly the Greek Islands, enjoying the cuisine and the laid back lifestyle. Tracey has also recently taken up running but says she has no intention of entering a Marathon!