HMRC have released an update following the Court of Appeal decision involving Colchester Institute.
HMRC have issued a Business Brief 3/26 VAT treatment of certain public funds received by further education institutions – GOV.UK which provides further guidance on their approach. A summary of the Brief is provided below
1. HMRC have confirmed that they will not pursue any further appeal of the Court of Appeal decision. This means that VAT policy must therefore change to reflect the judgment.
2. Any change in VAT policy will be from a future date and not retrospectively. The effective date has not yet been confirmed (to be announced following consultation). This means FE institutions do not need to revisit historic VAT periods solely as a result of the judgment.
3. HMRC have advised that they will be consult with stakeholders, including the FE sector, before implementing any changes and following this will issue updated VAT guidance setting out the practical consequences of the new policy.
4. For those FE Colleges currently treating funding as non‑business and outside the scope of VAT they may continue to apply the existing treatment until HMRC’s new policy takes effect.
5. HMRC confirms it will not revisit any charitable and non‑business VAT reliefs already claimed (e.g. reliefs for buildings, fuel and power) for periods before the change.
6. FE institutions that already treat the funding as consideration for a supply of education should continue applying that treatment and consider whether any corrective action is needed in relation to:
- VAT recovery
- Partial exemption calculations
- Reliefs previously claimed that may be inconsistent with that treatment
Next Steps
Although not creating immediate retrospective obligations, the Brief flags that FE colleges should begin assessing potential impacts of changes that will likely to apply in the future for example:
- Input tax recovery and partial exemption methodology;
- Capital projects and capital goods scheme implications;
- Ongoing eligibility for VAT reliefs linked to non‑business or charitable use.
If there is anything that you need to discuss in further detail, please let us know by emailing
Louise Gray – [email protected]
Kate Connolly – [email protected]
