VAT recovery on endowment funds still unclear

5 Apr, 2018

The Court of Appeal has referred the long-running University of Cambridge case to the CJEU.

It was hoped that the Court of Appeal in the University of Cambridge case would provide clear guidance on the VAT treatment of costs involved in managing an endowment fund that supports the activities of a charity generally. However, this issue now seems likely to remain unclear for some time as the Court has decided to refer certain issues to the Court of Justice of the European Union (CJEU) for more guidance.


The University of Cambridge undertakes a number of non-education activities such as letting premises outside term time and catering which are subject to VAT, and is therefore able to recover some VAT on its general overheads.

It has a large endowment fund, the income from which covers around 6% of its annual operating expenditure. It employs professional fund managers to look after this fund, and incurs VAT on some of their fees. It was common ground that this was not an economic activity.  The issue was whether the VAT on these fees related to this non-economic activity (and so was not recoverable at all), or whether it was another overhead cost of the University.

Concerns raised

The First-tier Tribunal and Upper Tribunal had both found in favour of the taxpayer, but the Court of Appeal has raised some concerns with their approach.

  1. It felt that too much emphasis had been put on the purpose of the investment activity (i.e. that it was there to support the activities of the University generally, and not an aim in itself).
  2. the various case law that had been relied upon was about organisations raising capital to finance future activities that would be subject to VAT – a more one-off situation than the ongoing generating of investment income to support other activities.

The Court accepted that recent case law points to a principle of looking at the economic activities which flow from initial expenditure, unless there is some more immediate activity which these costs are linked to. In particular, reference was made to the Court of Appeal’s recent decision in Associated Newspapers, where the costs of providing vouchers was held to be clearly a cost of selling more newspapers. However, the Court felt the link was not as clear in this case.

Further guidance

In the light of this, the Court has decided to refer this matter to the CJEU for more guidance. It may therefore be several years before there is clear guidance on when organisations with an endowment fund that supports the activities of the organisation can recover the VAT on managing this fund. In the meantime, the decision of the Upper Tribunal has not been overturned, and organisations that have recovered VAT based on this are entitled to continue to follow it.

Please contact a member of the VAT team if you would like to speak about your position with regards to the topic.

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