From education to employment

Multimillion Pound Saving for the FE Sector as Colchester Institute wins seven-year VAT dispute with HMRC

Gary Horne, Executive Vice Principal at Colchester Institute Corporation

@ColchesterInst has won a seven-year dispute with @HMRCgovuk, in a decision of the Upper Tribunal (Tax and Chancery Chamber) on 22nd December 2020. The case centred on whether HMRC’s interpretation and application of the Lennartz accounting method was correct, specifically on what was deemed “non-business” activity and whether output value added tax (VAT) was accountable. The Upper Tribunal’s verdict was clear: no activity was “private” or “non-business” use and, as such, no output tax was accountable. 

Noel Tyler, executive chairman of VATangles, the VAT consultancy which advised Colchester Institute Corporation said:

“This is great news for our client. HMRC will now need to make repayments to Colchester, and several other colleges, who have made retrospective claims to recover output VAT”. 

He continued: “The Upper Tribunal agreed with the arguments we made on behalf of Colchester and other colleges. It ruled in favour of our client that there is not, and never has been, any such “non-business” activity, and therefore no output tax was accountable. 

“Colleges have traditionally calculated their recoverable VAT taking into account “non-business” activity, and as a result of the decision, colleges will need to revise their Partial Exemption Special Methods (PESM). 

“Amended methods will certainly benefit the further education sector and will lead to simplification of calculating recoverable VAT. It may even result in more VAT being reclaimable,” Noel concludes. 

Gary Horne, Executive Vice Principal at Colchester Institute Corporation was pleased with the outcome of the case: 

“The decision is a positive result for us as well as the wider FE sector, which has complicated VAT rules. The outcome of this case is a step in the right direction in simplifying how we apportion and account for VAT moving forward,” he commented. 

Gary highlighted: “VATangles is a trusted partner who has an in-depth knowledge of tax law and success at representing clients at Tribunals and in the Courts. Their expertise and advice on this case and other VAT matters over the last few years has been invaluable.” 

VATangles was founded in 2004, by Noel Tyler, with a purpose to make a difference to not-for-profit organisations through providing legally based proactive VAT consultancy. They currently represent over 40 further education colleges helping them to achieve long-term savings through planning, reviews and proactive legal challenges of certain VAT positions. 

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