In Colchester Institute Corporation v HMRC [2018] TC06657, the First Tier-Tribunal (FTT) found that the provision of education to the extent it is funded by funding agencies is not an economic activity for VAT.

  • This case was a lead case with a further 17 appeals stayed behind it awaiting decision.
  • Colchester Institute provide further and higher Education courses to over 11,000 students.
  • 49% of students are 16 -18 years old.
  • Approximately 62% of Colchester Institute’s income of around £40m was made up of grant funding
  • Colchester Institute undertook a rebuilding of the Campus:
    • 75% of the £100m estimated costs were to be funded by the Learning and Skills Council
    • After Phase 1 was completed in January 2009, the government closed the Learning and Skills Council at a time when £40m had been spent by Colchester Institute and £12.5m received in funding towards it.
    • The shortfall in funding was settled by Colchester Institute using cash reserves and a bank loan
  • Colchester Institute claimed VAT from HMRC on the costs using the Lennartz mechanism:
    • VAT is claimed in full upfront.
    • Where there is subsequent non-business use of the property a deemed self-supply takes place and VAT is accounted for as if it were a sale.
    • The Lennartz principle is not available for properties post 2011.
  • In 2014, Colchester Institute made a £1.5million claim for VAT overpaid under the Lennartz method:
    • They claimed that education is a business activity and therefore the Lennartz adjustments are not required.
    • This would also mean it was incorrect to recover all the VAT upfront, as most of the activities would then become exempt supplies.
    • As the Lennartz claim was made upfront most of it was now more than four years ago and it was too late to pay HMRC back for the overclaim.
    • The Institute claimed it was a business activity on the following grounds:
      • The provision of education and vocational training was a business activity regardless of how it was funded and irrespective of whether it was a supply for consideration.
      • In any case it was a supply for consideration because of the grant income received.
      • The activities amount to a single business activity and should not be split between business and non-business.
      • HMRC policy states that vocational training is an exempt supply, which therefore means it must be a business activity.
  • HMRC refused the claim on the basis that funding education is not a business activity:
    • There is no direct link between the funding provided by the agencies and the provision education provided by the Institute.

The FTT found in favour of HMRC:

  • The terms of the funding agreements do not amount to third party consideration.
  • There is not a sufficient direct link between the provision of education and the funding provided.
  • The funding is not consideration for the supply of services.
  • Education amounts to business activities, but the funded activities do not amount to economic activities under the EU law.
  • HMRC’s public policy statement related to specific types of vocational supplies and were not relevant in this case.
  • The provision of education and vocational training is not, therefore, an economic activity, to the extent it is funded by funding agencies.
  • The Lennartz mechanism could be used and it was right to require the adjustments to be made under that mechanism.

The appeal was dismissed.


Education & VAT

Private use of goods: VAT and Lennartz

External link: Colchester Institute Corporation v HMRC [2018] TC06657