Endowments

Attribution of management costs to taxable transactions

The University of Cambridge which was partly exempt and had agreed a special method for attributing its input tax reclaimed input tax on professional fees relating to the management of an endowment fund which invested donations to finance taxable and exempt activities. HMRC rejected the claim on the basis that the university’s investment activities were not an economic activity.

The First-tier Tribunal allowed the university’s appeal holding that the input tax should be treated as residual and as partly recoverable under the institution’s special method. The Upper Tribunal agreed so HMRC appealed.

Lord Justice Patten in the Court of Appeal considered there was a lack of clarity as to whether in a case such as this where the management fees were incurred in relation to a non-taxable investment activity it was nonetheless possible to make the necessary...