The First-tier Tax Tribunal (FTT) has released its decision in the above case which concerned whether VAT incurred by the University on investment management fees could be reclaimed.
The University operates an endowment fund which invests in a range of securities including equities, property, bonds, cash deposits and other investments. It incurs fees on the management of its investments and some of these fees bear VAT. The income generated from the various investments is distributed to support all of the University’s activities which include exempt supplies (education and research) and taxable supplies (commercial research, publications, consultancy, etc).
The University argued that following the CJEU’s judgments in Kretztechnik (C-465/03) and Securenta (C-437/06), as the input VAT was incurred on fees relating to the investment fund that supports all aspects of the University’s economic activities, the tax should, in part at least, be reclaimable. HMRC took the view that the fund management fees related to the fund’s non-economic activities and could not therefore be reclaimed.
The FTT concluded that, looked at objectively, the investment activity, which was not itself an economic activity, should be regarded for VAT purposes as an ‘overhead’. This was because, in its view, the activities of the fund supported the other economic activities of the University. As an overhead, the VAT incurred on the fund management fees is therefore deductible (either wholly or in part) in accordance with the taxpayer’s partial exemption method.
Although the fund’s activities and the University’s activities were, in fact, separate activities, the former were effected for the benefit of the latter. The costs of the investment activity were incurred solely for the benefit of the University’s economic activities in general and, objectively, were not incurred for the purpose and benefit of its non-economic activity. The input VAT in question therefore fell to be apportioned under the agreed partial exemption method.
Comment – as a First-tier Tribunal decision, it is binding only on the parties. HMRC has 56 days to appeal (14 October 2013) and, in the circumstances, it must be expected that HMRC will appeal. In the meantime, taxpayers in similar situations should consider lodging claims with HMRC to recover any input VAT disallowed in the previous four years