The temporary scrapping of VAT on PPE has been extended until the end of October.
The Treasury said the three-month extension, which comes after VAT on PPE was temporarily zero-rated at the beginning of May and import duty was removed, will save care providers and businesses an estimated £155m.
Financial Secretary to the Treasury Jesse Norman said: “Extending the zero VAT rate on PPE will provide the relief needed by care homes in particular, so that as many people as possible continue to be protected against the coronavirus.”
EU law governing VAT – which the UK is bound to until the end of the transitional period – requires the UK to charge VAT on the equipment.
But the government has acted under an exceptional basis allowed by EU rules during health emergencies, which allows member states to introduce temporary VAT reliefs to mitigate the impacts of the COVID-19 pandemic.
The move will particularly benefit care providers who are often unable to reclaim the 20% VAT they incur on their purchases, the Treasury said.
Meanwhile, home care providers are lobbying the government to review the VAT status of the entire social care sector.
In an open letter sent to the Chancellor of the Exchequer, Rishi Sunak, in May, six providers, including Home Instead and Right at Home, said social care services should become zero-rated for VAT.
This would mean providers would not charge VAT on services to the most vulnerable in society, but reclaim VAT on their expenses, such as PPE, utilities, rent and repairs.
Currently, goods and services provided by regulated social care organisations are exempt from VAT, meaning that they do not charge VAT on their services. However, their current VAT status means they cannot reclaim VAT on expenses.