The supply by a charity of ‘welfare services’ and any goods supplied in connection with those welfare services is exempt from VAT. Accommodation and/or catering that are ancillary to the main supply of welfare care services are also exempt from VAT.

‘Welfare services’ means services 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. This can include domestic help services such as cleaning, cooking and shopping where the recipient is in need of a high level of care and is unable to provide even basic self-care or has major difficulties in safely carrying out some key daily living tasks. HMRC regards care or treatment as including: ‘the protection, control or guidance of an individual, when this is provided to meet medical, physical, personal or domestic needs’
• the care or protection of children and young people. HMRC regards this as applying to services directly connected with the care and protection of specific children, rather than of children in general. For example, the exemption would include care provided in a children’s home or the placement of a child with foster-carers by foster agencies
• the provision of spiritual welfare by a religious institution as part of a course of instruction or a retreat, not being a course or a retreat designed primarily to provide recreation or a holiday. This would include providing spiritual counselling to an individual, discussion, meditation or prayer. It does not include conferences or retreats where the predominant purpose is not spiritual welfare, nor does it include educational courses in theology where the predominant purpose is to expand knowledge rather than provide spiritual welfare services.

For more information see HMRC VAT Notice 701/2:welfare.

‘Welfare’ is a non-business activity rather than exempt where it consists of care for distressed people and subsidised by at least 15 per cent.