In Colchester Institute Corporation v HMRC  UKUT 0368, the Upper Tribunal held that funding provided to a college by government agencies constitutes an economic activity for VAT purposes.
Colchester Institute Corporation (CIC) is a further education college providing further and higher education courses to over 11,000 students.
- The students either pay for their courses themselves or the courses are funded wholly or partially from government agencies.
- Before this case, HMRC viewed grant-funded education as a non-business activity and where students pay their own fees, the education becomes an exempt business activity for an eligible body.
The dispute centred around a claim for overpaid output VAT amounting to £1.5 million.
- CIC argued that its supply of education to students, which was paid for wholly from government grants, was a Business (or economic) activity.
- The college, therefore, submitted its claim for repayment of the output tax it considered had been overpaid to HMRC.
- HMRC rejected the claim and the college appealed to the First Tier Tribunal (FTT).
The FTT Dismissed the college’s appeal finding that the provision of government-funded education was not an economic activity.
- The college appealed to the Upper Tribunal.
- The Upper Tribunal considered that the grant-funded education was a supply of services for consideration and allowed the college’s appeal.
- This was not the end of the matter as HMRC was allowed to offset the over-claimed input against the claim even though the four-year time limit had expired.
The Upper Tribunal noted that this appeal was a lead case behind which a number of other education appeals were stayed. The decision of this case could have wide-ranging implications in the educational sector and any charity receiving government agency grants.
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Funded education not an economic activity
In Colchester Institute Corporation v HMRC  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.