Are you recovering VAT on investment management costs?

The Upper Tribunal in HMRC v University of Cambridge [2015] UKUT 305 on 9 June 2015 decided that the university was entitled to partly recover input VAT incurred on investment management services for its endowment fund.

The university makes both exempt supplies of education and taxable supplies (including commercial research, sale of publications, consultancy services and other supplies). Donations received by the university were invested into its endowment fund, and the fund then invested those monies in a range of securities, which generated circa £40m of income annually, and which covered 6% of the university's total expenditure.

The university sought to recover VAT on its investment management costs as residual input tax in accordance with its partial exemption special method. It was accepted that the university's investment activity was not an economic activity in itself, and that the endowment fund's transactions were outside the scope of VAT.

The decision confirmed that there is no material distinction to be drawn between income and capital raising activities for the purpose of determining VAT recovery, but it is necessary for it to accrue for the benefit of all activities of the relevant institution. The residual input VAT recovery position should be supportable for general endowment funds, where the principal aim in setting up such funds is to use income from invested capital for general ongoing operations. But, for specific endowment funds, no input VAT will be recoverable if the purpose of those funds relates to an exempt supply for VAT purposes (e.g. such as the specific provision of education).

Partially exempt entities who similarly hold and manage investments for the benefit of their general activities as a whole may wish to review their own VAT recovery positions. If appropriate, they may then wish to seek to partly recover VAT on associated fund management costs, subject to their partial exemption methods. There may also be scope for retrospective claims in relation to previously unclaimed input VAT.

Please contact our VAT team for further information, or if you would like to discuss further.


UK VAT team