VAT implications from the Colchester Institute Corporation case

Were the sums received from the government funding agencies grants, or payments for services? Charities, and those providing education in particular, may find the outcome of this dispute helpful to keep in mind when reviewing their own activities.

Colchester Institute Corporation (“CIC) v. HMRC

As background, the taxpayer was a Further Education college, which provided education and training to students. Students either paid for their courses personally, or their education was funded by two government funding agencies (the Skills Funding Agency (SFA) and the Education Funding Agency (EFA)).

The dispute was over whether the sums received from the government funding agencies were grants, or payments for services. Were the supplies of education and training “supplies of services for consideration”?

The First Tier Tribunal concluded that the sums received from the government agencies were a “block grant”, which had been provided subject to conditions. The funding was not consideration paid for a supply of services.

However, the Upper Tribunal disagreed.

• It drew parallels to CJEU case law, where the court had held that the fact that the services provided to individual residents of a care home (which were funded by a French insurance fund) were in fact services that the care home had provided for consideration. The fact that the healthcare provided to residents (and in this case, the education provided by the CIC) was not personalised, and the fact that the payment was made as a lump sum, did not affect the “direct link” between the supply of services by the CIC and the consideration received. This analysis was possible even when the funding received from the government agencies were determined by statute.

• Importantly, there is no need to have a link which is so direct that all payments from the government agencies could be matched to supplies. It was enough that the agreements with the government funders restricted the funding to specific courses listed on the government website (and so the CIC was not free to use the money as it wished); that the amount paid was determined by formula and specific to the CIC’s outputs (number of students, courses, and types of students); that the CIC would need to repay any funding which was not used for supplying the courses; and finally that the CIC needed to submit extremely detailed information to the funders, on each student, to show how the money had been spent (the funding agencies then adjusted their payments to match that data, and according to the statutory formulae).

Therefore the Upper Tribunal concluded that there was a “direct link” between the grants coming into the CIC and the courses provided to the CIC’s students for free. The CIC’s provision of grant-funded education was a VAT exempt supply of education services.

This case highlights that an activity that is 100% grant funded is not automatically a non-business activity. Charities, and those providing education in particular, may find this helpful to bear in mind when reviewing their own activities.