The decision in the University of Cambridge case confirms that universities and other partially exempt entities, with investment funds that derive income or capital for the benefit of their overall economic activities, should be able to recover part of their input VAT in relation to fees charged by the fund managers. Rejecting HMRC’s arguments, the Upper Tribunal upheld the university’s submission that the relevant question was whether its investment activity through its endowment fund was carried out for the benefit of its economic activity in general. As that was held to be the case, the cost of the fund’s supplies constituted overheads and a component part of the price of the university’s products.
The UT decision in University of Cambridge was a welcome one for partially exempt bodies with similar types of investment funds that derive income or capital for their overall economic benefit, report Nicholas Gardner and Shayaan Zaraq Bari (Ashurst).
The Upper Tribunal handed down its judgment in HMRC v University of Cambridge  UKUT 305 on 9 June 2015 (reported in Tax Journal on 23 June 2015), in which it dismissed HMRC’s appeal and concurred with the First-tier Tribunal’s (FTT’s) decision that the University of Cambridge (the university) was entitled to recover input VAT incurred on investment management services for its endowment fund. This decision may be of assistance to partially exempt institutions holding investments that generate income which is used for the benefit of their activities as a whole. The university makes two types of supplies: exempt supplies of education; and certain taxable supplies consisting of commercial research, sales of publications, consultancy services and other supplies. It receives donations, which it invests into its substantial endowment fund (which had assets of £991m on 31 July 2007). The fund then invested those monies in a range of securities, which generated around £40m of income in each of the relevant years, covering 6% of the university’s total expenditure. In 2009, the university submitted a claim for recovery of input tax of £182,501, on the basis that it should be treated as residual input tax and recoverable pursuant to the partial exemption special method. It was common ground that the university’s investment activity was not an economic activity and that the endowment fund’s transactions were outside the scope of VAT.
Input tax recovery
Both parties agreed the basic position that input VAT is …