HomeVATFind your way through the maze of VAT and disability

Find your way through the maze of VAT and disability

Our expert Melanie Lord explains the labyrinthine rules that surround disabled people and VAT

It is worth remembering that VAT works on the basis of ‘guilty until proved innocent’. VAT is chargeable unless there is a relief that specifically covers precisely whatever is being supplied. So it is hardly surprising that people are confused by the VAT rules covering supplies to people with a disability as the various reliefs rely on a number of different tests.

The starting point is to ask:

  1. What exactly is being supplied?
  2. Who is going to use it?
  3. Who is the customer?
  4. Where did the money come from to pay for the supply?

Objective answers to these questions should point you to being sure whether VAT needs to be charged. However, before exploring the variables it is worth underlining here that the key word is ‘objective’. A common mistake happens when someone knows there is a VAT relief for disabled customers and does nothing more than assume they do not need to charge VAT. In most situations this will lead to the wrong answer. What the supplier ought to do is work through the multi-layered rules before deciding whether he is safe to not charge VAT.

Looking at how the multi-layer rules work, here is what the supplier needs to think about:

  1. What exactly is being supplied? It is not enough for the supply to be made to a disabled person or that it helps them cope with their disability or even that it’s essential for people with a disability. Strict rules apply that limit the relief and all of the tests must be met before VAT does not fall due.

Subject to meeting the other requirements outlined below the broad categories of supplies that might be covered by a VAT relief include:

  1. a) The adaptation, installation, repair and maintenance of a limited range of goods which might possibly be zero-rated. This includes adapted motor vehicles, boats and mobility scooters. Other equipment: medical and surgical appliances designed solely for use by disabled people; specialist adjustable beds, chair lifts, hoists and sanitary devices; computer devices; emergency alarm call systems; hydrotherapy pools; and low vision aids.
  2. b) Supply of building works can also be zero-rated in limited circumstances. Examples given in HMRC’s public notice reflect the rather inconsistent distinctions that have come out of previous VAT tribunal decisions so that zero-rating can apply if a contractor is:
  3. i) Widening an existing doorway but not if he is making a new opening or swapping a window for a doorway.
  4. ii) Widening a passageway even if that involves widening a room so a disabled person can pass through to another room.

iii) Constructing a ramp but not if it includes lowering a threshold or constructing a vehicle driveway.

  1. iv) Creating, extending or adapting bathroom etc facilities to suit the condition of a disabled person.
  2. v) Installing a lift solely for use by a disabled person (see also below).

In addition, there are other VAT reliefs not explored here which include the zero-rating of a disabled person’s hire or purchase of goods from a charity where the goods were donated to the charity and the VAT exemption of health and welfare services.

  1. Who is going to use it? A concept that underpins the VAT relief in this area is that the goods or works should be ‘designed solely’ for use by a disabled person. A standard piece of equipment or appliance will not qualify and VAT will fall due on such things as air conditioning, orthopaedic beds, reclining chairs and most computer hardware. Undoubtedly, these things could benefit a disabled person but VAT is still chargeable unless the goods pass the test of being ‘designed solely for disabled people’.

This ‘user’ based approach creates difficult situations when you are dealing with public buildings; for example, where the customer is a charity installing a lift for use by disabled people.

Generally, to qualify for VAT relief the supply must be for the sole use of specified individuals. As a result, a lift that could also be used by unspecified chronically sick or disabled persons who might need it, rather than for the personal use of specified individuals, would not usually qualify.

Exceptions to this are where a charity installs a lift in a day centre where more than 20% of individual users are disabled or other buildings where a charity provides residential accommodation for disabled people and the lift is needed so they can move between floors.

  1. Who is the customer? To qualify for relief where:
  • the customer is an individual, the goods must be for their personal or domestic use, or
  • the customer is a charity the supply must normally be for the sole use of specified disabled people (see also reference to lifts above).

Before VAT relief can be applied, the customer must provide the supplier with a declaration for each individual person with a disability. Situations where building work provides for several specific disabled people, for example works done for a charitable housing association, a separate declaration would be needed from each disabled person.

  1. Where did the money come from to pay for the supply? In some cases VAT relief can apply where the ‘user’ is a disabled person but the person paying is not. An example would be where grant-funding is being provided to pay for adaptations in a disabled person’s own home. Where the grant is paid direct to the contractor, before the invoice is zero-rated, the contractor must hold a declaration from the individual ‘user’ of the work and also address the invoice to them and not the Council or charity providing the grant-funding.

Shades of grey

The myriad shades of grey thrown up by the VAT relief available for supplies to disabled people frequently leads to confusion and error. I would recommend that if you are ever asked whether VAT should be charged to disabled customers, your answer should always be ‘sometimes’.

The VAT treatment on supplies to people with a disability is extremely fact dependent. It follows that before VAT can be handled correctly, each situation needs to be carefully considered.

  • Melanie Lord is Managing Director of AVS VAT. For more go to www.avsvat.com

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