ANALYSIS - Who benefits from the VAT on caring?
A reader has complained to me that I was only seeing the tip of the iceberg last month when I highlighted the Brown/Primarolo compassion levy. Income tax on gestures of condolence is nothing when compared with New Labour’s imposition of VAT on caring. I fear my reader is right! His business is to provide live-in carers to the elderly and disabled. The carers work on a rota basis so the client has continuous care. The carers are self-employed. On average, the client pays £315 per week for round-the-clock care. By now some readers will be thinking the National Health Service provides this and if people choose to seek private care, they deserve to be taxed. If so you are wrong. A couple of years ago, my mother, who is in her 80s, had a heart attack. The doctor told me it was essential she had a home help and I should call Brent Social Services. ‘Oh no,’ Brent told me. ‘We don’t provide home helps for the elderly sick, but we can give you a list of private agencies.’ Fair enough in a way. My mother has been independent all her life. Why should she expect the state to start caring about her when she is too frail to get out to vote? I pay home help Celia’s fee, her employer’s NI and a commission to the agency for introducing her to me and handling the payroll and so on. There are two contractual relationships: between Celia and myself and between the agency and myself. The agency of course charges VAT on its commission, but Celia’s earnings are well below the VAT limit. What the government now proposes is to insist that Celia – and all my readers’ carers – become employees of the agency, or as Customs so succinctly says in its gleeful press release of 28 September 1998: ‘The new rules will make clear that under normal circumstances temporary workers supplied by employment bureaus will have a contractual relationship with the bureau supplying them, and not the client hiring them.’ It goes on to point out: ‘VAT will therefore be due on the full amount received from the client including salary and associated costs in relation to the temporary worker.’ In my case this will increase the cost of Celia’s services by about 16% – all of which goes straight to the Treasury. My reader indicates his current arrangements are different to those of the agency I use, and that he believes the cost to his clients will more than double. It is interesting to note that the government’s attacks on building industry subcontractors and on personal service companies both excluded assignments where the services are supplied to a private individual. It is, of course, common sense not to seek to enlist the man in the street as an unpaid tax collector when he wants his house decorated or his computer serviced. In the same way, I readily admit, I would not have to pay VAT on Celia’s earnings if I were to entice her away from the agency and pay her direct. But why should the government think it right to exact tax from me merely because I choose to engage her through an agency. If I engage the decorator or the computer repairman through an agency, the agency will have to apply PAYE and NIC, but the government will let me, the agency and the worker decide what contractual relationship we choose to create. So what is different about nursing agencies? I do not have a clue. One obvious difference is that everyone potentially needs decorators and equipment repairs. Only the old and the sick need carers or domestic helpers. This is a relatively small constituency in voting terms. Many such people are housebound. Many are poor. Most VAT changes are, we are told, the fault of the EC. But this extra VAT charge on caring is wholly home grown. Clearly it is not for my benefit. I do not want to pay VAT. It is not for Celia’s either. She does not want some of her clients to be forced to dispense with her services. The only beneficiary seems to be HM Customs & Excise and through them, HM Treasury. I can afford to pay an extra 16% to ensure my mother gets the help the hospital told me she needs. I fear many cannot. But who cares about them? Clearly not Gordon or Dawn.