HM Revenue and Customs Brief 34/08
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Issued 24 July 2008
VAT – partial exemption – retrospective claims for input tax by higher
education institutions (HEIs)
This Revenue & Customs brief article sets out HM Revenue & Customs (HMRC)
policy on retrospective claims by Higher Education Institutions (HEIs) that
operated a Partial Exemption (PE) method agreed under the Committee of Vice
Chancellors & Principals (CVCP) guidelines. This article takes account of the
Tribunal decision in the cases of Wadham College Oxford & Merton College Oxford
[VTD 20233]. It uses a number of specialist terms that are fully explained in
Public Notice 706, Partial Exemption.
Prior to 1997, when the CVCP guidelines were withdrawn, many HEIs chose to
determine their recoverable input tax using a simplified partial exemption
method described in the guidelines as the CVCP method. Recoverable input tax was
calculated as a fixed percentage of the output tax payable on certain taxable
supplies (known as tunnelled supplies). For some HEIs, the tunnels did not deal
with all taxable supplies and these HEIs had the option to agree additional
‘tunnels’ for any other supplies, or, if they preferred, to agree their own
special method instead.
In 2003, Wadham College Oxford & Merton College Oxford submitted
retrospective claims for the period 1973 to 1994 on the basis that the CVCP
method had not allowed them to fully recover the residual input tax they were
entitled to on general overhead costs. We rejected the claims on the basis of
the calculations made.
In hearing the appeal, the Tribunal considered two issues in detail:
- whether the fixed percentages of the CVCP method gave credit for input tax
incurred on general overheads used partly for tunnelled, taxable supplies
- how to calculate any unclaimed input tax that related to additional
taxable supplies not covered by the tunnels
On the first point, the Tribunal concluded that the CVCP method provided
credit for all the input tax they were entitled to in respect of the tunnelled,
taxable supplies: both directly attributable and general overhead costs. So,
unless the HEI made additional taxable supplies, not covered by the tunnels,
then no further claim was due. On the second point, the Tribunal rejected both
the appellants’ proposed calculation and the method we put forward which
included the values of all of the supplies of the HEI (including tunnelled
supplies). The Tribunal invited both parties to reach agreement.
We conclude that an HEI operating the CVCP method would only be entitled to
claim further input tax if:
- it made taxable supplies not covered by the tunnels in the CVCP method
- there was no agreement as to how input tax on these taxable supplies would
Any entitlement to claim further input tax should be calculated using an
appropriate methodology based on the use of the costs incurred.
The House of Lords decision in Condé Nast and Fleming established that the
three-year time limit contained in regulation 29(1A) of the VAT Regulations 1995
cannot be applied in relation to input tax incurred, but not yet deducted, in
accounting periods ending before 1 May 1997. Claims in respect of those
accounting periods may be made at any time until 31 March 2009 (see Revenue &
Customs Brief 07/08 published on 20 February 2008 and Clause 116 of the Finance
HEIs that operated a method based on the CVCP guidelines and who made taxable
supplies not covered by the partial exemption method may now wish to make claims
in line with this article and Budget Notice 78.
If HEIs are uncertain as to whether they have sufficient evidence to
demonstrate that additional taxable supplies existed, they may wish to contact
their local VAT office for assistance. Once it is established that they made
taxable supplies not covered by the PE method, we will only accept claims based
on reasonable estimations with supporting evidence.
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Article Published/Sorted/Amended on Scopulus 2008-07-27 12:48:31 in Tax Articles