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.
Links
Private use of goods: VAT and Lennartz
External link: Colchester Institute Corporation v HMRC [2018] TC06657