Licence presents wrong picture

The taxpayer company Grimsby College Enterprises was wholly owned by Grimsby Institute of Further and Higher Education an educational charity. It had been set up in 1993 to undertake commercial profit-making activities designed to provide the institute with additional funding.

In 2001 the institute’s governors decided to build a new engineering centre. Without taking tax advice they went ahead with the build assuming the construction work would be zero rated.

The governors later took professional advice and realised the building work would be subject to VAT. They tried to rearrange affairs whereby the construction work would be supplied to the appellant on the basis that it would be able to recover the tax.

The advice was that there should be a novation of the building and consultancy contracts and that the institute should grant a lease of the...