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Last updated: 4 Jun 2021
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Grant funded education will still be treated as non-business activity

HMRC has confirmed that it will continue with its existing policy of treating grant funded education as a non-business activity, clarifying its position on government funding for educational institutions following the outcome of the Colchester Institute Corporation case.
Context of the Colchester Institute Corporation case

Following our article highlighting the potential impact of the Colchester Institute Corporation (CIC) case earlier this year, HMRC has now issued a Business Brief, clarifying its response to the decision of the Upper Tier Tribunal.

Context of the Colchester Institute Corporation case

You may recall that the Upper Tier Tribunal found that Government funding provided to CIC was third party consideration for the provision of education to students and hence exempt from VAT, and more importantly, was business income. This is in contrast to the widely accepted position that such funding is outside the scope of VAT and supported the non-business activity of free education. Such a conclusion means that the VAT liability of income that is closely related to the provision of education could now change and of greater concern, a college undertaking exempt business activities would not be entitled to benefit from the reliefs available for the construction of new buildings or for fuel and power.

About the authors

Socrates Socratous

+44 (0)20 8037 3113
socratouss@buzzacott.co.uk
LinkedIn

Linda Skilbeck

+44 (0)20 8037 3114
skilbeckl@buzzacott.co.uk
LinkedIn

Following our article highlighting the potential impact of the Colchester Institute Corporation (CIC) case earlier this year, HMRC has now issued a Business Brief, clarifying its response to the decision of the Upper Tier Tribunal.

Context of the Colchester Institute Corporation case

You may recall that the Upper Tier Tribunal found that Government funding provided to CIC was third party consideration for the provision of education to students and hence exempt from VAT, and more importantly, was business income. This is in contrast to the widely accepted position that such funding is outside the scope of VAT and supported the non-business activity of free education. Such a conclusion means that the VAT liability of income that is closely related to the provision of education could now change and of greater concern, a college undertaking exempt business activities would not be entitled to benefit from the reliefs available for the construction of new buildings or for fuel and power.

The impact of the latest update from HMRC

The impact of the latest update from HMRC

In a move that is to be applauded, HMRC has confirmed that it will continue with its existing policy of treating grant funded education as a non-business activity, thus allowing colleges who meet the relevant conditions to continue to benefit from the zero or reduced rate reliefs. HMRC indicate there will be further litigation on this issue and hence the current position may change at some point in the future, but in the interim, this is good news for the sector. 

Any organisation that wishes to apply the decision of the Upper Tier Tribunal and to treat Government funding as business income is free to do so, however, that will also mean there will be an adjustment to any zero or reduced rate reliefs that have been claimed.

Speak to an expert
Speak to an expert

Should you have any questions regarding this update please contact our VAT Consultancy Partner Socrates Socratous on 0208 037 3113 or socratouss@buzzacott.co.uk 

Alternatively, complete the form below and one of our experts will get back in touch with you.

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