Weekly VAT News

St Patrick’s International College Limited & Ors: VAT and Alternative Providers of higher education – CA

St Patrick’s International College Limited, and two other institutions providing higher education, argued that their supplies of education services should be exempt from VAT under the direct effect of the EU Principal VAT Directive (PVD), or, alternatively, in accordance with Group 6 of Schedule 9 to the Value Added Tax Act 1994 (VATA). Whilst it was common ground that the Appellants had similar educational aims to universities, colleges of universities and Further Education Corporations (FECs), the institutions were Alternative Providers (APs). Unlike Higher Education Institutions and FECs, APs are not included in VATA as ‘eligible bodies’ entitled to VAT exemption. As such, HMRC considered that exemption did not apply, with both the First-tier and Upper Tribunal agreeing with HMRC that the UK was entitled to treat APs differently given the different regulatory regimes that applied, and that there had been no breach of fiscal neutrality. However, the Court of Appeal has allowed the appeals. In addressing Ground 1, that of the incorrect implementation of the PVD into UK statute, the CA held that the FTT and the UT had erred in law in concluding that the test in Rank Group Plc (C-259/10 and C-260/10) – under which a difference in VAT treatment is a breach of fiscal neutrality if the supplies are identical or similar from the point of view of the typical consumer and meet the same consumer needs – does not apply to the ‘supplier condition’ in the education exemption. This conclusion was reached on the basis that the Court was bound by its previous decision in LIFE [2020] EWCA Civ 452 (regarding whether restricting the welfare exemption to certain categories of provider was compatible with fiscal neutrality). Because Ground 1 succeeded, the Court did not rule on the Appellants’ alternative arguments. The appeals were allowed. (Contact: Laurie Pay)

Simplification of the Capital Goods Scheme

HMRC have published a policy paper on the simplification of the Capital Goods Scheme. The measures, which are intended to reduce the administrative burden for VAT-registered businesses, remove computers and items of computer equipment from the list of assets covered by the scheme, and the expenditure threshold for land, buildings and civil engineering work will increase from £250,000 (exclusive of VAT) to £600,000 (exclusive of VAT). The measures come into force from 29 July 2026. Existing assets and expenditure incurred before that date will continue to be treated under the current rules. The Value Added Tax (Amendment) Regulations 2026 have been made to implement these changes. (Contact: Ben Tennant)

VAT recovery on pension scheme services – HMRC VAT Notice 700/17 updated

Following the publication of Revenue and Customs Brief 4 (2025) in June 2025, and HMRC’s update on 4 June 2026 to the VAT Input Tax Manual from VIT44600 to VIT44750 regarding the deductibility of VAT incurred on services relating to funded occupational pension schemes, HMRC have updated VAT Notice 700/17 – Funded pension schemes. The updated VAT Notice has been significantly rewritten to reflect HMRC’s revised position. Notable changes include the removal of the 70% investment/30% management apportionment simplification, with the VAT Notice now stating that if the supplier issues a single invoice for both kinds of services, input tax relating to the investment and management services can be deducted in full. This is provided that the invoice is in the employer’s name (and subject to any partial exemption restrictions). There is no longer a requirement to apportion dual-use costs between the employer and the trustees of the pension scheme. Given HMRC’s June update to the VAT Input Tax Manual, it is possible that further clarification and amendments to either or both publications will be required. (Contact: Jack Bennett)

VAT and medicines: Compassionate use and early access programmes – written statement

Further to the oral statement made by Exchequer Secretary Dan Tomlinson on 23 June 2026, a written statement was made on 2 July 2026. In the written statement it explains the position relating to deemed supplies and that the Government understands that any additional VAT burden on medicines provided free-of-charge has the potential to impact patient outcomes. The written statement states that the Government will bring forward a new approach as soon as possible, with changes being effective for donations made on or after 23 June 2026, and the Government will engage with stakeholders on these options. (Contact: Chris Cherrill)