Is care exempt or zero-rated for VAT?

Care and accommodation supplied by a CQC-registered home are exempt from VAT, not zero-rated. Both mean no VAT on the fee, but only zero-rating would allow input VAT to be reclaimed, and the exemption does not.

Can a care home reclaim the VAT on its costs?

No. Because its income is exempt, the home cannot recover the VAT it pays on supplies such as food, agency staff and repairs. That VAT is an irrecoverable cost that has to be built into the fee.

Does a care home need to register for VAT?

Exempt care income does not count towards the £90,000 threshold, so a home with wholly exempt income is not required to register. Standard-rated income from other activities is measured separately.

VAT and the Welfare Exemption for Care Homes

Written and reviewed by the Care Home Accountants editorial team. Last reviewed 28 July 2026.

Care provided by a CQC-registered home is exempt from VAT under Schedule 9, Group 7 of the VAT Act 1994. Exempt is not the same as zero-rated, and the difference decides whether a home ever recovers the VAT it pays on its own costs.

We set out how the welfare exemption works, why it leaves input VAT stranded as a cost, and where the £90,000 registration threshold does and does not apply.

Exempt Rather Than Zero-Rated

A supply of welfare services and accommodation by a state-regulated provider is exempt from VAT. The home charges no VAT on its fees, and residents and funders pay nothing extra. This position is set out in VAT Notice 701/2 and rests on the provider being registered with the Care Quality Commission.

Zero-rated supplies also carry no VAT on the invoice, but they sit inside the VAT system and let the supplier reclaim input VAT. Exempt supplies do not. That single distinction is what makes the exemption a double-edged position for a care business.

The Irrecoverable Input VAT Cost

Because the home makes exempt supplies, the VAT it pays on food, agency staff, maintenance, utilities and capital works cannot be reclaimed. That VAT stays in the business as a real cost, and it raises the true price of everything the home buys by up to 20%.

We build this into fee modelling and budgeting, because a home that assumes it will recover input VAT will understate its costs. Our accounts and VAT work treats irrecoverable VAT as part of the cost base from the outset.

The £90,000 Registration Threshold

VAT registration is required when taxable turnover passes £90,000 in a rolling twelve-month period. Exempt care income is not taxable turnover, so a home whose income is wholly exempt does not count that income towards the threshold and is not required to register on the strength of it.

A provider that also makes standard-rated supplies, such as consultancy or certain non-care services, needs to watch those separately. You can check when to register for VAT against the value of the taxable part alone.

State-Regulated Providers and the Exemption

The exemption depends on the provider being state-regulated, which for a care home in England means CQC registration. A home that loses or lacks that registration cannot rely on the welfare exemption for its care fees.

How the fees are met does not change the VAT position. Whether a place is paid by a self-funder, a local authority or the NHS, the underlying supply of care remains exempt, and how those routes interact is covered in our guide to care home fees and funding.