HMRC has met the concern expressed at the outcome of the case of Colchester Institute in the most constructive manner available to them. They are to be congratulated on that.
The appellant’s case was based on the idea that funding from SFA and ESF amounted to exempt consideration for a supply of education. The Upper Tribunal agreed to this. For the appellant to win the case overall it needed to win on a second point, but was unsuccessful. The decision therefore went in HMRC’s favour, despite HMRC’s defeat on the funding liability issue. As the appellant withdrew from the process, HMRC was unable to appeal the point on which the Upper Tribunal had been against them.
The point is important to many charities, since, if such sums are to be regarded as consideration, this can cause a range of problems, such as denial of zero rate reliefs on costs, and the theoretical possibility of VAT on income hitherto assumed to be grants. Although the Colchester case had been brought by a charity, its outcome was adverse to charities in general.
HMRC’s Brief makes clear their continued disagreement with the Upper Tribunal’s conclusion and that they are seeking a test case to attempt to overturn it. This is a brave strategy, which CTG hopes will prove successful. It is unfortunate that public resources need to be diverted into protecting a generally accepted principle which is of value to many charities.
Graham Elliott is CTG’s Technical Adviser