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The recent decision in the case of THE CHANCELLOR

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13th September 2013 the vat people

MASTERS AND SCHOLARS OF THE UNIVERSITY OF CAMBRIDGE (the University) will be of interest to many charities and not for profit organisations. This is especially so for organisations where HMRC have blocked VAT recovery on costs that have been incurred to raise funds to allow the organisation to make some degree of VATable supplies.

The case highlights the fact that whilst HMRC may seek to argue that VAT on costs can only be recovered where the cost is directly connected to making a VATable supply, this is not in fact the case. If the end result is that the costs allow an organisation to make VATable supplies VAT recovery should be allowed. This seemingly fine distinction is a very important one where an organisation incurs costs intended to generate income from activities such as fund raising events and activities where there might not be an immediate connection to the end supply, but where the supply could not occur without the funds being generated. 

The University like many charities has investments that it uses to fund its activities. These activities may be VATable or exempt business activities or non-business ones. It is not possible to recover VAT on costs relating to non-business activities or to VAT exempt ones (subject to certain limits). However costs that cannot be related specifically to VATable or non VATable activities can be claimed to the extent they are used to generate VATable business income. Historically the University did not recover the VAT it had incurred on its investment activities and submitted a claim in 2009 to recover VAT incurred of £182,501. Needless to say HMRC sought to block the claim on the basis that there was no direct and immediate link between the VAT claimed and the economic activities undertaken by the University. This was despite the fact that in order to undertake its activities the University required the funds generated by its investments to fund the activities. 

The tribunal chairman looked through the immediate link between the costs incurred relating to the investment to the onward connection to an economy supply funded by the investment. The Tribunal therefore took the sensible view that whilst the University’s investment activities were not economic activities in their own right, the costs incurred needed to be considered objectively to determine if they were classed as overheads. If the costs of a non–economic activity such as investments were incurred in order to benefit the other economic activities, the costs were overhead costs and VAT on the costs was recoverable to the extent they were used to make VATable supplies.

This decision is an important one for any organisations that has incurred VAT on costs that generate funds intended to allow the organisation to make VATable supplies. This includes costs relating to investments and other fund raising activities. If your organisation or your client’s has incurred such costs over the last four years and either been assessed to block VAT recovery or chosen to not claim the VAT it would be worth your contacting our free VAT helpline for an initial consultation to determine if there is an opportunity to make a claim for additional VAT recovery.


About the Author

The VAT People are leading VAT and Customs Duty consultants based in the North West of England. We work with a wide range of businesses throughout the UK as well as assisting our accountancy colleagues to unravel the thorny VAT issues for their clients. We are one of the UK's largest and most comprehensive sources of VAT and Customs advice, our consultancy team having over 140 years of experience in VAT and Customs gained in either HMRC or a Big 4 accountancy practice environment.

Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.



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Article Published/Sorted/Amended on Scopulus 2013-09-17 09:04:16 in Tax Articles

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