The Court of Justice of the European Union (CJEU) has published its decision on the University of Cambridge case on 3 July 2019, and the news is not good. The decision went against the University of Cambridge.
The case revolved around the University of Cambridge seeking to claim that its investment management costs of its endowment fund were to be ‘residual’. This would have meant that input VAT incurred on these costs would be treated as overheads and subject to partial exemption recovery method of the organisation.
The CJEU has determined that the investment management fees were incurred in order to generate resources that are used to finance all of that university’s output transactions. This allowed for the price of the goods and services provided to be reduced, but the investment management fees could not be considered to be components of those prices and consequently, do not form part of overheads. As there is no direct and immediate link either between those costs and a particular output transaction or between those costs and the activities of the University of Cambridge as a whole, the VAT relating to those costs is not deductible.
The CEJU concluded that Article 168(a) of the VAT Directive must be interpreted as meaning that a taxable person that:
- is carrying out both taxable and exempt activities,
- invests the donations and endowments that it receives by placing them in a fund and
- uses the income generated by that fund to cover the costs of all of those activities is not entitled to deduct, as an overhead, input VAT paid in respect of the costs associated with that investment.
Therefore any organisation which has applied the University of Cambridge principle, and received monies from HMRC on claims made on this basis needs to seek professional advice on how to proceed. We would be anticipating that HMRC will write to the organisations who have made such claims, but equally these organisations may need to consider making an error correction disclosure to HMRC.
This article was written by Charity Partner Helena Wilkinson. If you have any questions regarding this article you can contact Helena using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.