On 9 June 2015, the Upper Tribunal (in HMRC v University of Cambridge1) held that VAT on fees paid by Cambridge University to the investment managers of its endowment fund was partially recoverable as the managers’ fees were part of the University’s general overheads.
The Cambridge University Endowment Fund (the Fund) invests donations and endowments in a range of equities, bonds and other investments. Income generated by the Fund is used to support all of the University’s activities. The Fund’s investment activity is outside the scope of VAT.
Professional managers engaged by the University to manage the Fund charged fees subject to VAT at the standard rate. The University sought to recover input tax on the manager fees, under its partial exemption method (the University makes both taxable and non-taxable supplies). HMRC refused the recovery claim on the basis that (in its view) in order for the VAT to be recoverable the investment management fees needed to be incorporated into the costs of all the University’s economic activities (which they were not).
The Upper Tribunal dismissed HMRC’s appeal from the First-tier decision, applying the tests established by the European Court of Justice (ECJ) in the Kretztechnik and SKF cases. As the University’s investment activity was carried out for the benefit of the University’s economic activity in general, the managers’ fees were part of the University’s overheads and the VAT incurred was recoverable under its partial exemption method.
The decision can be found here.