In an important ruling for educational charities and investment managers, Cambridge University has persuaded a tax tribunal that it is entitled to a substantial VAT rebate in respect of the fees it paid over a 27-year period to professionals engaged in managing its endowment fund.
The fund produced an income of about £40 million per year which was distributed across the University and used in support of all its activities, both taxable and exempt. As a charity, the university was required to expend all the income, which represented about 6 per cent of its turnover, on the deliverance of its aims.
The University claimed that it had, over a total of 27 tax years, overpaid input tax in respect of fees that it had incurred on the services of professional fund managers. It sought a VAT rebate in excess of £180,000; however, the claim was disputed by HM Revenue and Customs.
In upholding the University’s appeal, the First-tier tribunal found that, on a correct analysis of the relevant case law, it had a right to deduct, in part, input tax incurred on the operating costs of the endowment fund on the basis that they should be characterised as overhead expenditure.