The First Tier Tribunal (FTT) found that irrespective of government funding, the supply of education and vocational training is a business activity for VAT. The supplies were provided in exchange for consideration; they fall within the scope of economic activity.
In Colchester Institute Corporation (No 2) v HMRC TC09097, the FTT found that funding provided to a college by government agencies constitutes an economic activity for VAT purposes. The Supply of education and vocational training was exempt from VAT.
- Colchester Institute Corporation (CIC) is a further education college providing courses within the meaning of education and vocational training.
- CIC is funded by tuition fees paid by students and government grants.
- CIC constructed new buildings, costing £40 m of which £12.5m was government funded.
- HMRC's stance was that CIC could Reclaim input tax on the new buildings proportionate to their non-business usage. Subsequently, CIC would need to account for Deemed output tax over the economic life of the buildings to the extent of their non-business usage.
- HMRC considered that when government-funded, the supply of education and vocational training is a non-business activity.
- HMRC raised an Assessment in respect of output tax underdeclared.
- The CIC argued that the provision of education and vocational training was a business activity, irrespective of how it was funded. There was no requirement for CIC to account for deemed output VAT.
- The assessment was upheld by HMRC, following, a statutory review in July 2017.
- CIC Appealed to the FTT
The FTT found:
- The FTT were bound by the decision of CIC v HMRC [2020] UKUT 368 (TCC). Supplies of education and vocational training provided for consideration are deemed economic activities.
- Supplies of education and vocational training are exempt from VAT, there cannot be a deemed supply leading to output tax liability.
- The was no basis for the assessment of output tax as part of the assessment. The FTT allowed the appeal.
Comment
HMRC's view is unchanged as a result of the CIC decision and they view the supply of funded education and vocational training is outside the scope of VAT.
It's important to note that there is a risk that HMRC will appeal the CIC No 2 decision to the Upper Tribunal. If HMRC is successful, penalties and fines could be levied where the supply has been incorrectly treated as exempt.
Useful guides on this topic
Education & VAT
What rate of VAT applies to education? What sort of services are classed as education? What do you do if you have multiple supplies including education? What cases are there on VAT and education?
Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?
Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one?
Funded education is an economic activity
In Colchester Institute Corporation v HMRC [2020] UKUT 0368, the Upper Tribunal held that funding provided to a college by government agencies constitutes an economic activity for VAT purposes.
R & C Brief 8 (2021): VAT treatment of public funds received by further education institutions
HMRC have published Revenue & Customs Brief 8 (2021): 'VAT treatment of public funds received by further education institutions' which provides interim guidance following the Colchester Institute Corporation decision until the position is further tested.
Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?
External Links
TC09097 Colchester Institute Corporation (No 2) v HMRC
