Recovery of Input VAT

In the case of Chancellor, Masters and Scholars of the University of Cambridge vs HMRC, Cambridge University contested HMRC’s original ruling that input tax incurred in relation to the management of an Endowment Fund, made up on endowments and donations, was non-recoverable on the basis that it did not qualify as part of the University’s economic activity and any transactions made by this Fund were therefore outside the scope of VAT. This Fund’s main activity was investments made both in the UK and abroad.

Cambridge University’s main supply was that of education which, for VAT purposes, is exempt from VAT however other taxable supplies were made by the University including commercial research, catering and the hiring of facilities/equipment. The result of the University making both taxable and exempt supplies is that a Partial Exemption calculation had to be undertaken in order to apportion any residual input VAT for recovery purposes. The Fund generated income which was then used to support both taxable and exempt supplies made by the University.

When recovering input VAT, the question of whether the costs of an activity form part of a business’s overheads must be considered. In this instance, it was deemed that the investment activity undertaken by the fund should be included in the University’s overheads and should therefore be eligible for input VAT recovery.

The conditions for input tax recovery are numerous and are not always straightforward so if you, or any of your clients, are attempting to claim for the deduction of input tax and have any queries it is important to clarify these in order to ensure an informed and efficient approach.

Please call our free helpline today for expert advice on matters relating to this and any other on which you may require help.

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