Management costs of an endowment fund are not 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.

Finding in favour of the taxpayer the Upper Tribunal agreed with the First-tier Tribunal that the input tax should be treated as residual and as partly recoverable under the institution’s special method. The Court of Appeal considered there was a lack of clarity and referred the matter to the Court of Justice of the EU.

The ECJ said the university’s investment activities did not fall within the scope of the VAT Directive. Therefore the input VAT paid in respect of any costs incurred in connection with them was not...