Revenue and Customs Brief 8 (2021): VAT treatment of public funds received by further education institutions
Published 26 May 2021
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Purpose of this brief
This brief sets out HMRC’s response to the primary decision of the Upper Tier Tribunal in the case of Colchester Institute Corporation UT/2019/0006. The decision was released on 22 December 2020.
Who needs to read this
Further education institutions and tax advisors.
Background
The primary decision concerns the VAT treatment of public monies received by further education institutions to fund the provision of education to 16-19-year-old students (and certain other categories of students entitled to full funding). HMRC is of the view that monies received by these institutions from government funding agencies are grants and the activity funded is outside the scope of the VAT system. However, Colchester Institute Corporation successfully argued that the monies represented third party consideration paid from the public purse to Colchester Institute Corporation to educate a particular group of students.
The Upper Tribunal decision
The decision of the Upper Tribunal, if sustained, means that further education institutions undertaking the activity of educating 16-19-year-old students will be providing education and training which falls within the scope of the VAT system, but will be exempt from VAT (Item 1, Group 6, Schedule 9, VAT Act 1994). A change in status of these activities from outside the scope (non-business) to within scope (business) would also impact on an institution’s ability to obtain certain zero-rated reliefs, which are available to certain charities that carry out non-business activities.
HMRC acknowledges the decision of the Upper Tribunal in Colchester Institute Corporation and has not appealed further because it was successful in its alternative arguments. However, HMRC is taking steps to test the primary decision on the treatment of public monies via a new appeal. In the meantime, HMRC’s policy concerning grant funded education will remain unchanged and HMRC will not impose the primary decision on any further education institution. This means that it remains open to institutions, that continue to treat such education as non-business, to claim charitable reliefs, where all the relevant criteria have been met.
Institutions can choose to apply the conclusion of the Upper Tribunal in Colchester Institute Corporation, treat the education as exempt and submit error correction notices for any under or overpayment of VAT, including adjustments to previous claims for charitable reliefs. HMRC will protect its position to secure tax revenues, pending the outcome of an appeal.
Further Information
The decision of the Upper-tier Tribunal can be found here Colchester Institute Corporation v The Commissioners for HM Revenue and Customs (2020) UKUT 0368 (TCC)).