VAT tax scheme fails
The Upper Tribunal has decided that a circular scheme set up on behalf of Huddersfield University to ultimately, avoid the VAT costs on a refurbishment project was abusive. The scheme will now be disregarded for VAT purposes.
The University had entered into a circular and self-cancelling lease and leaseback with a trust set up in order to avoid the VAT costs of refurbishing university property.
The judges’ disposition is reproduced below:
“We therefore allow the appeal on the first ground put forward by HMRC because we find that the tax mitigation scheme entered into between the University and the Trust was an abuse of right in so far as it entitled the University to claim a greater deduction of input tax paid on the refurbishment work on East Mill than it would have been entitled to if that refurbishment work had been regarded as directly and immediately linked to its general, largely exempt, supplies.”
In other words, as the educational services provided by the university were, by and large, exempt from VAT, then the majority of the VAT input tax on the refurbishment costs could not be reclaimed.