Weekly VAT News

Colchester Institute Corporation (No. 2): further education business activities - FTT

Colchester College reclaimed VAT of c. £2m on its 2008 campus redevelopment project, applying the Lennartz mechanism which (at the time) allowed VAT recovery on costs relating to non-business activities, subject to a balancing output tax charge over the next ten years. In 2014, the College decided that the provision of fully-funded further education was actually an exempt business activity, and it submitted a claim for repayment of the balancing charge. On reaching the Upper Tribunal in 2020, it was held that the College’s supplies were exempt, and it should never have applied Lennartz.  However, the UT ruled that the College’s claim should be reduced to nil, applying rules on set-off. Nonetheless, the decision on exemption potentially justified the College’s decision (in 2015) to stop paying any more output tax. HMRC disagreed, and assessed the College for underdeclared output tax which they saw as properly due. The College appealed, and the First-tier Tribunal has allowed its appeal. HMRC recognised that this was a foregone conclusion, as the FTT was bound by the UT’s decision in Colchester No. 1. However, the fact that HMRC pursued the appeal anyway means that it is likely that they will apply for permission to appeal to the UT. If so, any decision by the Upper Tribunal that confirms that fully-funded further education is an exempt business activity may adversely affect the further education sector’s ability to access VAT reliefs such as the zero rate on the construction of relevant charitable buildings, and the reduced rate on supplies of fuel and power. (Contact: Kate Connolly)

Latvijas Informâcijas: VAT on grant-funded activity - AGO

Latvijas Informâcijas un komunikâcijas tehnoloìijas asociâcija (the Association) acted as an intermediary between training providers, funding bodies, and businesses. The question for the CJEU was did it act as a link in the supply chain, receiving and providing training services (while also arranging for the training to be paid for from ERDF funding), or did it merely organise subsidised training? In the Opinion of Advocate General Julianne Kokott, the Association was involved in the supply chain on one project, where funding was routed to the trainee which then used it to pay the Association for the training. The same conclusion probably applied for a separate part-funded project (where the funding should have been treated as consideration for the Association’s training). AG Kokott then considered whether it was supplying training in the course of an economic activity. In her view, the critical thing to identify was the manner in which an activity was carried out. In this case, the Association bid for project ownership, linked up with training providers, identified possible trainees, and bore some economic risk. The fact that Latvian law required ERDF projects to be implemented either by government or by a non-profit association could not alter a conclusion that the Association was in business and should be entitled to recover VAT on charges from the training providers. (Contact: David Walters)

Aspire In The Community Services Ltd: pre-registration input tax – FTT

As a state-regulated provider of residential care and services for individuals with autism, learning difficulties and behavioural problems, Aspire in the Community Services Ltd (AICS) had applied the welfare exemption to its services and had never registered for VAT. Following the conclusion of LIFE Services in 2021, which confirmed that activity that is not required to be state regulated is taxable, private welfare providers could provide unregulated care services to local authorities and charge VAT that the authority could recover. This permitted them to recover some VAT on their costs. Consequently, AICS restructured, started making taxable supplies and recovered a proportion of VAT on its costs. However, it also wished to recover £31,727 as pre-registration input tax. HMRC eventually exercised their discretion and allowed AICS to recover a proportion of this VAT in recognition that initially the costs may have supported pre-registration exempt activity. AICS applied for disclosure of various documents showing how HMRC had exercised their discretion. The FTT has refused the application, finding that the tribunal had a supervisory jurisdiction to review HMRC’s decision on pre-registration VAT, and HMRC’s decision-making process might need to be considered in that context. However, that discretion had been exercised in favour of AICS. How much of that deemed input tax could be recovered was a separate exercise. Consequently, the question of how HMRC had calculated AICS’ repayment was not relevant and the application was refused. (Contact: Jacqui Nicholls)

Further extension to deadline for CDS migration to 4 June 2024

The CIOT has reported that businesses can move all export declarations to the Customs Declaration Service from Monday 4 March 2024 (earlier than the anticipated launch date of 30 March). The Report goes on to explain that exporters needing more time for the changeover can still use CHIEF until Tuesday 4 June 2024. (Contact: Jeffrie Mann)

This week’s CJEU VAT case calendar

On 21 March, there will be a CJEU judgment in the case of Dyrektor Izby Administracji Skarbowej w Bydgoszczy on unjust enrichment.