Is Domiciliary Care VAT Exempt? Managed Provider vs Introductory Agency

The short answer: is domiciliary care VAT exempt?

Domiciliary care is VAT exempt when you are the registered provider delivering the care, and standard-rated when you only introduce carers or supply staff to someone else who is responsible for the care. That single distinction, who is actually responsible for delivering the care, decides almost every domiciliary VAT question you will ever face.

Here is why it matters in pounds. A home care agency turning over £600,000 a year on the exempt side charges its clients and councils nothing extra and never touches a VAT return. The same £600,000 run through an introduction model would carry £100,000 of VAT that someone has to absorb, usually the agency, because private care clients cannot reclaim it. Get the model wrong and you can be sitting on a backdated bill you never charged out.

We work with home care agencies and supported living providers across London and the wider UK, and this is the first thing we check on day one. If you want the wider picture of how a specialist supports a care business, our healthcare and social care accountants page sets out the full service. The rest of this guide walks through the rule, the trap, and how to tell which side of the line your agency sits on.

The rule: welfare services from a state-regulated provider

The exemption comes from VAT Notice 701/2, which makes welfare services supplied by a state-regulated provider exempt from VAT. That is the whole basis for a domiciliary agency charging no VAT, and it is worth understanding properly rather than taking on trust.

Two things have to be true. First, the service has to be a welfare service, which HMRC defines as care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled people. Personal care in someone's home, help with washing, dressing, medication, mobility and daily living, all of that is welfare. Second, you have to be state-regulated, which in England means registered with the Care Quality Commission (CQC). You become state-regulated the moment the regulator approves your registration as a provider of the regulated activity.

A point that surprises a lot of owners: it does not matter who pays. When a CQC-registered provider delivers welfare services to the client, the supply is exempt even if a local authority commissions and pays for it. HMRC's own guidance gives exactly this example, a council contracting a state-regulated domiciliary agency to provide care for the elderly or disabled, and confirms the agency has made an exempt supply of welfare services, not a taxable supply of staff to the council. So your private clients and your council-funded clients are treated the same way for VAT, as long as you are the one delivering the care. You can read the detail in HMRC's VAT Notice 701/2 on welfare services and goods.

For most domiciliary providers this is good news and the end of the story. You register with CQC, you deliver the care, you do not charge VAT, and VAT returns are simply not part of your month. The complication only appears when the way you are set up does not match the way you think you are taxed. That is where the next section comes in. If you also need the mechanics of returns and digital filing, our page on VAT returns and Making Tax Digital covers it.

The trap: introductory agencies and staff supply are standard-rated

An introductory agency that matches self-employed carers to clients, or a business that supplies care staff to whoever is legally responsible for the care, makes a standard-rated supply, not an exempt welfare service. This is the single most expensive misunderstanding in the sector, and it catches owners who genuinely believe they are exempt because the word care is in their trading name.

Think about who is responsible for the care. In a managed model, the agency holds the contract with the client, employs or engages the carers, plans the visits, supervises the work and carries the CQC registration for delivering the regulated activity. The agency is supplying care, so the supply is exempt welfare. In an introduction model, the agency finds a carer, runs the checks, takes a one-off or ongoing fee, and then steps back. The client and the carer arrange the care between themselves, and the client carries the responsibility. The agency is not supplying care, it is supplying an introduction, and an introduction is standard-rated.

Staff supply sits in the same standard-rated bucket. HMRC's internal guidance is clear that an employment business in the welfare sector makes a taxable supply of staff when it places workers with a third party, such as a local authority or another provider, and that third party is legally responsible for the onward provision of care. You can see the position in HMRC's VAT welfare manual on supplies of staff. The carer is your worker, but the care is the other party's responsibility, so what you are selling is staff, at 20 percent.

There is a second sting in the introduction model. The carers introduced as self-employed are often not genuinely self-employed once HMRC applies the status tests, which can turn a VAT problem into a PAYE and National Insurance problem at the same time. We pull that thread apart in our guide on self-employed versus employed carers and the status risk for care agencies. The two issues travel together, so it is worth checking both before HMRC does.

What being VAT exempt actually costs you

Being exempt is not the same as being VAT free: you charge no VAT, but you also cannot reclaim the VAT on your costs, so it stays in your overheads. This is the part owners often miss when they hear the word exempt and assume it is purely good news.

Run through where the VAT actually sits. The rent or service charge on your office, your care management software, recruitment and DBS platforms, mileage and vehicles, uniforms, training, accountancy and legal fees, all of these usually carry 20 percent VAT that a VAT-registered trading business would reclaim. As an exempt provider you cannot. On a mid-sized agency spending, say, £120,000 a year on VATable overheads, that is around £20,000 of VAT a year that you carry as a real cost rather than recover.

This is not a reason to want to be standard-rated. Charging your clients 20 percent extra to unlock that recovery would cost them far more than it saves you, and private care clients walk when fees jump. It is a reason to budget honestly. The headline care fee you quote has to absorb irrecoverable VAT, and a generalist who treats your numbers like a normal VAT-registered company will quietly understate your true cost of delivery. Knowing your supplies are exempt changes how every overhead is posted, and it changes the margin you actually keep, which is the number we focus on when we look at domiciliary care agency profit margins.

Do you ever need to register for VAT?

Only your taxable turnover counts toward the £90,000 registration threshold, so a pure managed-care provider with only exempt income never has to register, however large it grows. A £2 million home care provider delivering nothing but exempt welfare services has a taxable turnover of zero for VAT and stays outside the system entirely.

The question becomes live the moment you have taxable income alongside the exempt care. Common examples are introduction fees, supplying staff to another provider, selling training to outside organisations, or consultancy. Add those up over a rolling 12 months, and if the taxable part alone passes £90,000 you must register, even though your exempt care income does not count. The £90,000 threshold is unchanged for the 2026/27 tax year.

Once you have both exempt and taxable supplies you are partially exempt, which means you can reclaim the VAT on costs that relate to your taxable activities but not the VAT on costs that relate to your exempt care. Shared costs get split under a partial-exemption method. It is not difficult once it is set up properly, but it does need setting up, and it needs reviewing if your mix changes. A quick way to see roughly where your taxable income sits against the line is our VAT registration calculator, and the deeper mechanics live on our VAT and Making Tax Digital page.

Which model are you running?

If you contract with the client, engage the carers and carry the CQC registration for delivering the care, you are a managed provider and your care is exempt. If you only connect carers and clients, or place staff with a responsible third party, you are standard-rated. Most owners know instinctively which one they are, but the paperwork has to agree with the instinct, because HMRC looks at how you actually operate, not what your website says.

Three models show up again and again in domiciliary care, and they fall on different sides of the VAT line.

The reason this matters beyond the VAT itself is that the model you choose ripples through everything: who employs the carers, who carries the National Minimum Wage and pension liability, who answers to CQC on quality, and how you price. A specialist sets the accounts up to match the real model from the start, so the VAT position, the payroll and the margin all line up. A generalist tends to copy a standard limited-company template and only discovers the mismatch when HMRC asks a question.

What this means for you: getting your VAT position right

Start by writing down, in one sentence, who is responsible for delivering the care to your clients. If the honest answer is your agency, you are almost certainly exempt. If the answer is the client, or a council, or another provider, you are probably standard-rated. That one sentence settles most of it, and the rest is checking the paperwork agrees.

1. Match your contracts to your model. Read your client agreements and your carer agreements. If you operate as a managed provider, the contracts should show you delivering and being responsible for the care, not just introducing a carer.
2. Confirm your CQC registration covers the regulated activity. The welfare exemption depends on being state-regulated for the care you actually deliver. If your registration and your activity have drifted apart, fix it.
3. Separate any taxable income. Introduction fees, staff supply, training sold to others or consultancy are taxable. Track them apart from your exempt care so you can see the £90,000 line clearly.
4. Budget for irrecoverable VAT. If your supplies are exempt, build the VAT you cannot reclaim into your cost of delivery and your fee, rather than discovering the gap at year end.
5. Get a partial-exemption method in place if you have mixed income. It needs setting up once and reviewing when your mix shifts. Done properly it recovers everything you are entitled to and nothing you are not.
6. Sense-check before you change your model. Moving from managed care to an introduction model, or taking on a block staffing contract, can flip your VAT position. Model it before you sign, not after.

None of this is exotic. It is matching how you are taxed to how you actually run, and reviewing it when the business changes. Done early it is quiet. Left to an HMRC enquiry it is expensive. You can check your agency's position in a free call with LOYALS, and we will tell you which side of the line you sit on before anyone else asks.