The Upper Tribunal had upheld the First tier Tribunal’s decision in HMRC v University of Cambridge that the University was entitled to recover certain VAT incurred on the investment management fees that it incurs.
These costs relate to the management of the significant endowment fund, made up primarily of donations and other gifts. Because the income from the endowment fund was distributed across the University in support of all of its activities (which include VAT exempt education as well as taxable supplies of research, academic publishing and consultancy services), the VAT on these costs could be treated as an overhead of the entire activities that were being carried out.
Reviewing the decision, which was appealed by HMRC, the Court of Appeal concluded:
“The correct approach to be taken to the issue of attribution in this case is not acte clair and we propose to refer the matter for guidance to the CJEU under Article 267 TFEU. In particular, we consider that there remains a lack of clarity as to whether in a case such as this where the management fees were incurred in relation (and only in relation) to a non-taxable investment activity it is nonetheless possible to make the necessary link between those costs and the economic activities which are subsidised with the investment income which is produced. As part of the same issue we would also seek confirmation that our reading of the decision is Sveda is correct and that no distinction is to be made between exempt and non-taxable transactions for the purpose of deciding whether input tax is deductible”.
*UPDATE* Unfortunately, in July 2019, the CJEU ruled against the University of Cambridge. This case has potentially serious ramifications for charities – read a detailed commentary of the decision here.