Im thinking of setting up a company to run a children's day nursery- what is the VAT implications for childcare services? Someone told me that i cannot charge VAT even if my VAT turnover is above the threshold, so how can i recover VAT involved in setting up and other services bought which are essential for the provision of nursery services. Hope someone can help!
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Under the provisions of Item 9 Group 7 Schedule 9 VAT Act 1994, VAT exemption applies to the supply of welfare services by a charity, a state-regulated private welfare institution (or agency), or a public body. Note 8 explains that “state regulated” means “approved, licensed, registered or exempted from registration by any Minister or other authority…”. Welfare services with respect to VAT includes are services which are directly connected with the care or protection of children and young persons. Hence childcare services provided by a licenced entity are VAT exempt. If this is the only service you provide, then you dont need to register for VAT.

Once your supply is treated as exempt, you lose your ability to reclaim input VAT costs relating to that supply. But, if you are a charity you may not have to pay VAT, or may be entitled to a reduced rate VAT, on certain goods and services that you purchase.
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