Good news for the charity sector. HMRC have lost their appeal in the University of Cambridge case. This was concerned with whether VAT incurred on investment management costs could be partly recovered as residual VAT.

The investment activity was a non business activity of the University. Following the Children’s Society case, where it was decided that VAT incurred on donation fundraising could be partly recovered, the University felt it was entitled to treat its investment management fees in the same way and that the VAT it incurred on investment management fees was also partly recoverable. Many other charities took the same view, often with the agreement of HMRC.

It was therfore rather surprising when HMRC decided to refuse any recovery for the University of Cambridge. They lost before the lower VAT and appealed to the Upper Tribunal. Had they won this appeal it is quite possible this would have also called into question recovery of fundraising VAT; one suspects HMRC have never been very comfortable with the Childrens Society decision. So the Upper Tribunals rejection of HMRCs appeal is very good news. The Court commented that they believed the Childrens Society case had been correctly decided.

The HMRC argument that was rejected was a cost component argument. This is good as well as this approach, if accepted could have had very nasty repucussions for the Charity and the not for profit sector generally.