The statement comes after a company running two care homes in London took the issue to a tribunal because it believed it could make major costs savings by being VAT registered.
A Treasury source said: ‘We will not allow VAT to be imposed on vulnerable people in care homes. We will change the law if necessary to bring in a new exemption that protects them.’
Government sources said they did not accept the VAT tribunal ruling and were ready to appeal it to the High Court. That would take at least six months.
Currently, Customs & Excise regards such homes as VAT exempt under a European Union ruling that they provide hospital, medical and closely related care.
But Kingscrest, which runs two homes for adults and children with Downs Syndrome, challenged this ruling because it hoped VAT registration would lead to a major cut in costs and consequent increase in profits.
Deloitte & Touche VAT partner John Kennedy said that the tribunal’s decision could affect other care homes but the decision was not binding.
Independent estimates claim 150,000 residents in 20,000 homes could be affected.
Any legal tussle could take years going to the Court of Appeal, the House of Lords and the European Court of Justice.
Even if Kingscrest won, it did not necessarily follow that the ruling would, catch all residential care providers who made a profit.
That would require a further test in the courts also possibly taking years.
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