Colchester Institute VAT Judgement – New Year – New VAT issue for FE Colleges
“T’was the night before Christmas” – is the line that sprang to mind when we picked up the news that the Upper Tribunal has issued its decision on the 23rd December in respect of the college’s appeal against HMRC refusal to accept their claim for overpaid output tax, which in itself had arisen as a result of the college applying the Lennartz principle on costs used partly for a non-business purpose which then required a corresponding output tax adjustment over a longer period. The case judgement is here
Many of our colleges will be familiar with the case as the issue of whether the provision of education in a further education college is a non-business or exempt business activity affects the VAT recovery claims made as a result of the earlier Brockenhurst VAT case. The case commentary is a long, albeit “interesting”, VAT technical disclosure but to cut to the key VAT impact issue, the Upper Tribunal’s view of the nature of services being supplied by the college was that their provision of grant-funded education was an exempt supply of services. That the college had been wrong to claim and apply “Lennartz” treatment in the first place to the input tax recovered.
If the view that the provision of grant funded education by colleges is not a non-business activity but a VAT Exempt activity is now taken to apply to the sector the ongoing financial impact will be decidedly adverse. The right to the reduced VAT rate on fuel costs and the ability to achieve zero rating for the construction of new buildings for non-business student education could disappear on this basis – what happens to projects not yet completed – would HMRC take a retrospective view on the impact of the judgement – these are just a few of the questions that sprang to our minds here at Centurion – it’s definitely one of those “VAT just got more complicated” moments!
It will be important to understand HMRC’s reactions to this ruling and indeed what approach representative bodies for the further education sector will take on seeking clarification on the matter. We will, as ever, share news as we move forward into 2021. Clearly for our clients where we are already supporting on proposed zero rated building projects we will hopefully be able to get an early sense of the ramifications of this case. Contact our VAT & Education specialists on firstname.lastname@example.org if your college needs an immediate conversation on the implications.
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