HMRC v University of Cambridge

HMRC v University of Cambridge

Date:

23 June 2015

Investment services input tax partially deductible

In HMRC v University of Cambridge [2015] UKUT 305 (9 June 2015), the UT found that input tax incurred on investment services was partially deductible.

The university is a charity; and its main activity is the provision of exempt supplies of education. It also makes taxable supplies, including commercial research, sales of publications, catering and accommodation. The university invests donations and endowments in a fund which, in turn, invests in a range of securities, generating income that the university uses to support all of its activities. The issue was whether the fees charged by the fund should be characterised as overhead expenditure, attributable to the university’s economic activity as a whole. This would allow the university, as a partially exempt trader, to deduct a proportion of the VAT.

Agreeing with the FTT, the UT found that whether the fund was engaged in income or capital generating activities was not relevant to the issue of whether the input tax related to overheads, as the VAT treatment of transactions does not depend on whether they are income or capital generating. Referring to Kretztechnik (C-465/03), the UT pointed out that the question was whether the supplies had been acquired in connection with an activity carried out for the benefit of the university’s economic activity in general. As this was the case, the cost of the fund’s supplies was an overhead.

Finally, the UT rejected the contention that the disposal of investments by the fund was a chain breaking event, so that the necessary link between input tax and taxable supplies could not be established. The services supplied by the fund were not linked to any particular supply by the university because the investment activity was not carried out for its own sake but for the benefit of the university’s other activities.