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. 

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.

Comment

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.  

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?

Funded education not an economic activity
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.

External Links  

Colchester Institute Corporation v HMRC [2020] UKUT 0368 (TCC)