In a lead case for Universities, University of Newcastle Upon Tyne v HMRC [2017] UKFTT 0145, the First-Tier Tribunal (FTT) concluded that from 1 January 2010, the university must pay irrecoverable VAT under the reverse charge mechanism for overseas agency fees.
The case concerned the VAT treatment of fees paid by the university to overseas agents who recruited overseas students.
There were three parts to this case:
- Whether the fees paid to agents were subject to VAT under the reverse charge before 1 January 2010
- Whether the fees were subject to VAT under the reverse charge after 1 January 2010
- Whether the university could recover VAT on the fees
Over £1m a year was being paid to the overseas agents in commissions and performance fees.
The university put forward the following arguments:
- Pre 1 January 2010:
- The place of supply of services by the agents was where the supplier belongs (overseas)
- This means the supply was outside the scope of VAT
- The agency ‘override’ which would move the place of supply to the UK, could not apply as the agent had to be acting in the name of the university and had to be able to bind the university, which was not the case.
- Post 1 January 2010:
- It was accepted that due to the change in the place of supply rules any business to business (B2B) by the overseas agents to the university had a UK place of supply
- As it was a B2B supply in the UK by a non-UK business, the university accepted that reverse charge applied to that supply and the university has to account for VAT
- The university’s view was that only part of the supply should be treated as a B2B supply to the university and subject to the reverse charge
- Part of the supply is a business to consumer (B2C) supply to the students even though the university paid the fees.
- The B2C part of the supply has a place of supply where the agent belongs and is outside the scope of VAT.
- VAT recovery
- The VAT payable by the university under the reverse charge mechanism will be recoverable in part under the partial exemption rules
- The fees payable to the agents related in part to taxable supplies made by the university and therefore the VAT must be apportioned in accordance with the partial exemption special method they had agreed with HMRC.
HMRC’s view was that all services were subject to the reverse charge, such that the university had to account for VAT on the services.
HMRC held the view that no VAT was recoverable because the agency fees had a direct and immediate link to tuition fees and could not be apportioned.
The FTT decided in favour of the taxpayer on one point and agreed with HMRC on two:
- Pre 1 January 2010:
- The place of supply pre 1 January 2010 was where the agents belong
- There was no reverse charge requirement and no VAT payable by the university for this period.
- Post 1 January 2010:
- There was one single supply of B2B services by the agent to the university.
- There was no supply to the students.
- The students were indirect beneficiaries of agents' obligation to find the most suitable applicants for the university and any assistance provided by the agents to the students was as part of the supply to the university.
- The reverse charge applied to the full services by the overseas agents to the university.
- VAT recovery:
- No evidence was provided which showed any link between the agents' fees and the taxable supplies made by the university.
- Based on the evidence available, the VAT is irrecoverable.
Our guides:
Reverse charge & place of supply
Case reference: University of Newcastle Upon Tyne v HMRC [2017] UKFTT 0145
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