University of Cambridge Case – Bad News Ahead for Charity VAT Recovery ?
The European Court (CJEU) has given its judgement in the University of Cambridge case that was concerned with whether VAT incurred on the fees incurred on non business investment activity was recoverable. UK Courts had previously found there was an argument for recovery following the line of argument accepted in the Childrens Society case.
The Childrens Society had been been concerned with whether VAT incurred on raising donations by a charity could be recovered – it was found here that based on principles established in an earlier CJEU case concerned with share issues that it could to the extent that the donations funded taxable business activities.
Other CJEU cases concerned with VAT recovery has adopted a rather more direct link approach which didn’t look through to purpose. Because there was seemingly a tension between these two sets of decisions the UK Court of Appeal felt unable to decide the question and asked a series of perfectly sensible questions to the CJEU to try and resolve the issue.
Unfortunately the CJEU has not really engaged with the questions. The judgement gives one the impression of being an answer given by someone who really would rather not have been asked the question to start with as although the answer might have been obvious to them the reasons for this answer and need to reconcile the different past cases was difficult. This is also possibly why they unusually neither allowed an oral hearing or asked for an advocate generals opinion before deciding the case.
The Court does not deal with the referred questions, about the differences in the approach taken in previous cases to VAT directly linked to non business or exempt activities, but instead rephrases the questions. What is really being asked is whether the VAT incurred on the investment fees is recoverable. It isn’t is the answer – but there’s precious little reasoning as to why. A lot of the judgement is concerned explaining why investment is non business which wasn’t even a question asked.
The answer reminds me of the sort of answer you might get to a difficult question answered by a very junior and inexperienced VAT enquiries officer. They rephrase the question to something easier and send you a copy of the public notice saying the answer can be found inside.
But in my view what is clear from the judgement is that recovery of VAT by charities incurred on donation fundraising under the Childrens Society principles would be not acceptable to this Court. They effectively say so when donation fundraising is given as an example. Whether HMRC will change their policy and worsen VAT recovery for charities remains to be seen.
The case can be found here