Revenue and Customs Brief 8 (2021) VAT treatment of public funds received by further education
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Published 26 May 2021
VAT treatment of public
funds received by further education institutions
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.
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
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.
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)).
About the Author
© Crown Copyright 2021.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2021-05-26 20:46:49 in Tax Articles