Judgment summary
This decision concerns appeals by Portsmouth City Council against two HMRC decisions refusing claims for overpaid VAT, one for £148,484.95 covering 17 February 2017 to 30 April 2020, and one for £333,869.53 covering 1 May 2020 to 31 March 2024 (1). The dispute concerned whether services provided by the Council's Home Improvement Agency (HIA) to elderly and disabled persons, to help them apply for Disabled Facilities Grants (DFGs) and deal with contractors carrying out home adaptations, were exempt from VAT as "welfare services" under item 9, Group 7, Schedule 9 Value Added Tax Act 1994 (2).
The tribunal, comprising Judge Ashley Greenbank and Helen Myerscough, heard the consolidated appeals on 15 and 16 September 2026 (3, 4, 22). It found that the HIA services were closely linked to welfare and social security work within Article 132(1)(g) of the Principal VAT Directive, but that Article 134(a) excluded them from exemption because they were not essential to "transactions exempted", given that the underlying building works were supplied by non-exempt contractors (46-61). The appeal was dismissed (63).
Background
DFGs are means-tested capital grants available to eligible disabled people to help fund home adaptations, administered by local housing authorities under the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) (8, 9). Applications for DFGs can extend to "preliminary or ancillary services and charges" specified in the Housing Renewal Grants (Services and Charges) Order 1996, including form completion assistance, obtaining estimates, advice on contracts, supervision of works and payment of contractors (10).
Under section 169 of the Local Government and Housing Act 1989, the Council established the HIA, an internal team providing many of these preliminary or ancillary services to residents seeking DFGs (12, 13). The HIA charged a fee, described as a "Project Management service", structured as a minimum fee of £350 plus VAT or a percentage of the cost of works plus VAT, with the fee covered within the DFG once approved (14).
HMRC had previously repaid VAT for periods before 17 February 2017 on the basis the Council could rely on earlier HMRC guidance, but HMRC's guidance changed on that date, after which HMRC treated the HIA's supplies as standard-rated (19). The Council's claims for the two subsequent periods were rejected by HMRC on 23 April 2021 and 16 July 2024 respectively, and the resulting appeals (TC/2021/02780 and TC/2024/04474) were consolidated on 7 August 2025 under reference TC/2021/02780 (20, 21, 22).
Core dispute
The issue was whether the HIA's services, in assisting applicants with DFGs and with the procurement and management of building contractors for home adaptations, amounted to exempt "welfare services" supplied by a public body under item 9, Group 7, Schedule 9 VATA, construed in light of Article 132(1)(g) of the Principal VAT Directive (2, 27-29).
The Council argued that the HIA provided assessment-led support tailored to vulnerable individuals' needs, directly connected with promoting their physical and mental welfare and enabling them to remain safely in their homes, and so fell within the exemption (32). HMRC accepted the Council was a public body and that home adaptations funded by DFGs could serve welfare objectives, but argued the HIA's services were project management and intermediary services connected with procurement of building works, not themselves welfare services, and were excluded from exemption because they were not sufficiently closely linked to welfare work and not essential to exempted transactions (33).
Court findings
The tribunal held that the Council was a "body governed by public law" and a "public body" for the purposes of the exemption, which was not disputed (34). It found that the HIA's services were "closely linked" to welfare and social security work within Article 132(1)(g) PVD, applying the test from Ygeia that a supply must be "logically part" of welfare work and an "indispensable stage" in its provision; the HIA's role in arranging funding, agreeing contracts, supervising work and arranging payment was found to be an integral and necessary part of delivering home adaptations funded by DFGs (46, 49, 50).
However, applying Article 134(a) PVD and the reasoning in Kinderopvang, the tribunal held that the HIA services, although essential to the overall welfare objective, were not essential to "transactions exempted". The underlying transactions providing the home adaptations were the building works supplied by contractors, who were not charities or public bodies and whose services did not fall within the exemption. Because the HIA services coordinated and assisted non-exempt building works rather than exempt transactions, Article 134(a) applied to exclude them from exemption (58-61).
The tribunal also noted that it treated the witness statement of Mr Brian Bull, the Council's Housing Renewals Team Leader, with caution after cross-examination revealed that parts of it were not written by him, relying on it only to the extent corroborated by documentary evidence (5, 6).
Outcome
The tribunal dismissed the appeal, holding that the HIA's services were not exempt welfare services and that HMRC had correctly rejected both VAT overpayment claims (61, 63).
Major issues / areas of contention
- Whether the HIA's services assisting applicants with Disabled Facilities Grants and home adaptation works were 'welfare services' within item 9, Group 7, Schedule 9 VATA.
- Whether those services were 'closely linked' to welfare and social security work within the meaning of Article 132(1)(g) of the Principal VAT Directive.
- The meaning of 'welfare' and 'closely linked', drawing on the Advocate General's opinion in Les Jardins de Jouvence and the CJEU's reasoning in Ygeia.
- Whether Article 134(a) PVD excluded the HIA services from exemption on the basis they were not 'essential to the transactions exempted'.
- Whether the relevant 'transactions exempted' were the building works carried out by contractors, which were not themselves exempt supplies, applying the reasoning in Kinderopvang.
- The reliability of witness evidence given by the Council's Housing Renewals Team Leader, parts of whose statement were not written by him.