Cambridge University VAT case

You may be aware of the Children’s Society VAT case from 2005 and the current related Cambridge University case. In the Children’s Society case it was agreed that VAT incurred on fundraising costs could be recovered based on the VAT status of the activities the donations were used to fund, even though donation income is itself non-business.

In the Cambridge University case it was argued that, based on this principle, VAT on investment manager fees can be recovered based on the VAT status of the activities the investment income is used to fund, even though investment income is itself non-business. HMRC has been disputing the Cambridge University decision and it has recently been considered by the Court of Appeal (CoA). The CoA has decided to refer the issue to the Court of Justice of the European Union (CJEU). The CoA think there is a key difference between the Kretztechnik case which the Children’s Society case was based on and the Children’s Society and Cambridge University cases as in Kretztechnik case the VAT was incurred in capital raising activities but in the Children’s Society and Cambridge University cases the VAT was incurred in generating non-business income.

If the CJEU agree that there is a key difference between these cases then both the Cambridge University and Children’s Society decisions could end up being reversed. If HMRC is successful then it may reduce VAT recovery for some charities who currently recover a proportion of VAT on fundraising and/or investment management fees. We do not recommend that you make any changes to your VAT recovery now, but keep an eye on our newsletter for further updates on this case.