Grant Funding: Business or Non-business continued

Grant Funding: Business or Non-business continued

Updated guidance

Kieran Smith, Director, VAT and Customs Duty services
14/06/2021
Grant Funding: Business or Non-business continued

Our insight in January informed you of the decision of the Upper Tier Tribunal in Colchester Institute and the potential adverse effects it could have upon institutions other than those in the Further Education (FE) sector. 

Since our last brief there has been a further unsuccessful attempt by an FE College to exploit the decision made by the upper Tier Tribunal (read the transcript) and HMRC has also responded with its guidance in its business brief 08/21.

Who does this affect?

The decision has a direct application to those in the Further Education sector that receive grant income. However, in theory the conclusion arrived at by the UTT could be applied to any entity that has received grant income that has treated this as ‘non-business’.

What is the issue?

The decision in Colchester Institute reversed the common opinion that grant income is used to support non-business activities as the court opined that funding from The Skill Funding Agency (SFA) and the Education Funding Agency (EFA) was in fact consideration for supplies of educational services. In theory this could have wide reaching application in relation to the zero-rating of buildings used for charitable purposes, the application of reduce rate VAT to Fuel and Power and recovery of VAT on costs using both the standard method and special methods of partial exemption. 

Many VAT commentators have seen the decision by the Tribunal as a threat to common well founded VAT treatments applied by charities.

Where are we now?

HMRC’s brief 08/21 does give comfort to the charities’ sector as well as the education sector since it essentially confirms that it disagrees with the Tribunal’s decision and states that whilst it will not appeal, its policy on grant funded education will not change. Therefore, it appears that HMRC has no motivation to use the decision to serve a wider purpose and disturb well established VAT treatments for the charities’ sector. Furthermore, it is willing to retain the status quo in relation to SFA and EFA funding (i.e. treat the income as non-business).

Please get in touch with Rob Warne, Kieran Smith or your usual VAT contact if you would like to discuss this further.

Contact us

Robert Warne
Rob Warne
Partner, Head of VAT and Customs Duty services
London