College finds partial exemption trumps input VAT recovery

In Kingston Maurward College (KMC) v HMRC [2021] TC8108, the First Tier Tribunal (FTT) found that the provision of free education/vocational training to students where funding is provided by government agencies is an economic supply of services for consideration. KMC was entitled to input tax recovery but failed under the partial exemption rules.

KMC was entitled to input tax recovery but it failed to demonstrate the taxable, exempt and residual nature of its input tax as required under Partial exemption rules hence input tax was not recoverable.

KMC is a Further Education College that occupies a rural site in Dorset. 

• KMC provides: education and/or vocational training to students including agriculture, rural/land-based studies, business studies, military preparation and sport/leisure.
• It also supplies goods and services such as:
  • Sales of produce from KMC’s farm and dairy.
  • Products from its blacksmith
  • The hire of its buildings for weddings and conferences.
  • The admission of the public to its visitor park and gardens.
  • The operation of camping and caravan.

The majority of its students do not pay fees as these are fully funded by the Education Funding Agency (EFA) and the Skills Funding Agency (SFA).

KMC argued that it was entitled to recover more of the VAT it incurred on the basis that:

• It was making business Supplies of Education which are considered an economic supply of services for consideration there was a link to its taxable outputs, therefore input tax could be recovered in part according to the partial exemption special method.
• HMRC argued that KMC's supplies without charge do not constitute or form part of economic activity and input tax is not recoverable.
• Also, even if the supplies were an economic activity, KMC had not demonstrated that the claimed tax comprises ‘residual input tax’ in accordance with partial exemption rules.

The FTT accepted that KMC was making supplies of education to students, for consideration paid by the EFA so the VAT incurred was input tax and MMC was entitled to recover it.

It was noted that at no time had KMC demonstrated the taxable, exempt and residual nature of its input tax as required under partial exemption rules hence input tax was not recoverable.

The FTT suggested that KMC, “Cannot sidestep the required analysis to establish that it is entitled to credit for the claimed tax simply on the basis that there are various strands to its business which, to some extent, are interrelated”.

Useful guides on this topic

Education & VAT
What rate of VAT applies to education? What sort of services are classed as education? What do you do if you have multiple supplies including education? What cases are there on VAT and education?

Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

External links

Kingston Maurward College (KMC) v HMRC [2021] TC8108