Colchester FE Case and the Treatment of Hospice and Other Charity Funding
In early 2021 the Upper VAT Tribunal gave a well-argued judgment in an appeal concerning Colchester FE College. See Colchester Judgement. It was concerned with a very unusual set of circumstances where it was in the interest of the College to argue it made VAT exempt supplies by way of business. The College’s Government funding (via the ESFA) had always been treated as outside the scope in common with all FE Colleges. This had the consequence that the College was mainly engaged in non-business activities. The Court disagreed and found a sufficient link between the funding and the services provided for it to be regarded as payment for these services with the consequence that the College was engaged in business activities. The fact that the funding wasn’t for specific individuals didn’t matter. Understandably some advisors have seen similarities with other funding arrangements such as those used with hospice funding and raised concerns that funding streams that are currently treated as outside the scope are, in fact, exempt income.
Although these concerns are understandable, the case does not mean that the treatment of such Government funding has changed or there is necessarily any serious risk of it changing in the near future.
For example, the nature of hospice funding is rather different and can be distinguished from the arrangements considered in the case. FE Colleges receive a large proportion of their funding from Government sources, whereas hospices only a minority. If HMRC were to adopt a new policy for hospices, they would have had to do so with a far wider range of organisations. It would be hard to see how they could exclude Academy schools from the change, for example, and treating them as engaged in business would essentially prevent the state school sector from obtaining VAT recovery. So there are far wider policy implications of any change, which mean HMRC will be reluctant to make policy changes without a lot of thought. If they are forced to change their view of such funding, I suspect it will be a change accompanied by further legislation to protect bodies such as Schools and Hospices that must be seen to be engaged in non-business activities.
This is not just wishful thinking on my part as HMRC VAT Policy has confirmed to Hospice UK (17 May 21) that they have not changed their view of hospice funding based on the Colchester case.
There may well be some changes in the longer term, and perhaps that’s no bad thing. I always find the grants/supply debate to be had every time a charity client gets a new local or central Government funding stream rather problematic. Accepting any policy change will need to be accompanied by some major change elsewhere, such as the VAT exemption, to stop the sector from losing out. But the UK now has more flexibility to change the VAT system to mitigate any losses caused.
If you have any questions on hospice funding or any other VAT issues you want to chat through, please get in touch. I don’t charge for an initial chat. Contact me here.