The Court of Appeal has referred questions relating to Cambridge University’s right to recover VAT costs on the management of its investments to the ECJ. The university was allowed to recover the VAT on costs associated with the management of its endowment fund by the First-tier Tribunal (FTT) and the Upper Tribunal (UT) applying the principles in the Kretztechnik and AB SFK cases on the basis that while the investment activity itself was not an economic activity it was undertaken to benefit the other economic activities of the university. The costs were, therefore, part of the university’s general overheads and so it was entitled to recover the VAT in accordance with its partial recovery method. 

The Court of Appeal have now decided that the issue in question was unclear and should be referred to the ECJ and have asked the ECJ to opine on: 

(a) whether the FTT and the UT were correct to focus on the purpose of the investment activity;

(b) whether they were correct to treat the generation of income to be used for the purpose of the university’s economic activity as equivalent to a business raising capital to use for the purposes of its business; and

(c) whether it was correct that no distinction should be drawn between the university’s investment activity being not an economic activity or being exempt for VAT purposes in determining its right to recovery.  

It will be interesting to see what guidance is provided by the ECJ and what clarity is given to this area of input tax deductibility for operations with a mix of taxable and non-taxable or exempt activities.