City of Portsmouth College v The Commissioners for HMRC

Neutral Citation: [2025] UKFTT 01015 (TC) FIRST-TIER TRIBUNAL TAX CHAMBER Case Number: TC09614 Determined on the papers without a hearing Appeal references: TC/2016/05121 TC/2018/07245 TC/2019/00091 TC/2021/02335 VAT – Further Education College – Whether government funding agency grants are “consideration” for a supply of services (education and/or vocational training) provided free of charge to students – Yes – Colchester Institute Corporation v HMRC [2020] UKUT 368 (TCC) applied – Appeal allowed in part Judgment date: 15 August 2025 Before TRIBUNAL JUDGE BROOKS Between CITY OF PORTSMOUTH COLLEGE (FORMERLY HIGHBURY COLLEGE) and Appellant THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS Respondents As both parties consented and the Tribunal considered that it was able to determine the matter without a hearing, this appeal was determined on the papers without a hearing pursuant to Rule 29 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 DECISION INTRODUCTION 1. The Appellant, City of Portsmouth College (the “College”), appeals against assessments to output tax made by the Respondents (“HMRC”), under s 73 of the Value Added Tax Act 1994 (“VATA”) as described in the Statement of Agreed Facts, below. 2. The appeals concern certain grants received by Further Education Colleges, such as the College, from two government funding agencies, the Education Funding Authority (“EFA”) and the Skills Funding Agency (“SFA”), and whether these are, for VAT purposes, “consideration” for a supply of services (education and/or vocational training) provided free of charge by the Further Education Colleges to students (the “Consideration Point”). EVIDENCE 3. I was provided with a hearing bundle comprising 271 pages. Included in it were a Statement of Agreed Facts, the College’s Notice and Grounds of Appeal, HMRC’s Statement of Case and a witness statement of Jamie Arthur Lambe ACCA, the Financial Manager at the College. FACTS 4. Mr Lambe has been the Financial Manager of the College since June 2022. He is responsible for the day-to-day financial management and oversight within the College and the management of financial risks and control. He reports directly to the Acting Finance Director. In his statement Mr Lambe refers to two documents, Summary of Funding Processes 5. and A Summary of Funding Allocation Processes in England 2022/2023 which were prepared by Gary Horne the Deputy Chief Executive and former Financial Controller of Colchester Institute Corporation. 6. The Summary of Funding Processes describes the procedures for the funding of Further Education Colleges by the EFA and SFA until 1 April 2017 when they merged to become the Education and Skills Funding Agency (“ESFA”). The ESFA continued the funding role previously undertaken by the EFA and SFA and its procedures from 1 April 2017 are described in A Summary of Funding Allocation Processes in England 2022/2023. 7. Having compared these documents with the funding documents produced by the EFA, SFA and ESFA, Mr Lambe confirmed that the basis of funding received by the College, as described in them was “entirely consistent” with that set out in the EFA, SFA and ESFA documents. Statement of Agreed Facts 8. The following Statement of Agreed Facts was produced by the parties: Background of City of Portsmouth College (1) The College - formerly Highbury College is a body corporate incorporated as a further education corporation under the Further and Higher Education Act 1992, registered for VAT under registration number XXX XXXX 82. The College is categorised by the Department of Education as a general further education college. Its campus is in Portsmouth, Hampshire. The College is a provider of further and (2) higher education and of vocational training programmes. (3) The College is an “eligible body” for the purposes of Item 1, Group 6 of Schedule 9 VATA. (4) The College’s courses are “vocational”, with the aim of providing its students with technical knowledge, skills, and attitudes to secure and succeed in employment. Many of the College’s courses lead to accredited qualifications. However, the College also provide non-accredited full cost and commercial vocational courses to meet the needs of local employers. (5) Each of the courses provided by the College which are the subject of this appeal are within the meaning of “education” or “vocational training”, in Item 1 of Group 6 of Schedule 9 VATA. Appeal of Assessments (6) The College has appealed against four decisions of HMRC made on statutory reviews under s 83C VATA. (7) The first is set out in a letter from HMRC to the College dated 30 August 2016. It upheld the assessments under s.73 VATA in respect of the College’s prescribed VAT accounting periods 04/15 to 01/16 notified to the College by a letter from HMRC dated 24 June 2016. The Assessment was for a total of £224,468 (excluding interest) in respect of output tax underdeclared for those accounting periods, which was subsequently reduced by HMRC to £173,930. This is the subject of appeal TC/2016/05121. (8) The second is set out in a letter from HMRC to the College dated 18 October 2018. It upheld an assessment under s 73 VATA in respect of the College’s prescribed VAT accounting period 07/16, notified to the College by a letter from HMRC dated 23 July 2018. This assessment was for a total of £56,117 (excluding interest) in respect of output tax underdeclared for the period. This amount was subsequently amended and reduced by HMRC on 18 October 2018 to £23,878. This is the subject of appeal TC/2018/07245. (9) The third appeal relates to three VAT periods, 04/16, 10/16 & 01/17 and is set out in three separate assessment letters from HMRC to the College dated 23 October 2018. The values for the assessments were £23,878, £21,532 & £21,532 respectively. The total amended value of the underdeclared output tax for the three periods is £66,582. This is the subject of appeal TC/2019/00091. (10) The fourth appeal is set out in a statutory review letter from HMRC to the College dated 20 April 2021. This letter followed the decision in Colchester Institute Corporation v HMRC [2020] UKUT 368 (TCC)), which was handed down on 22 December 2020. The statutory review decision upheld several assessments under s 73 VATA in respect of the College’s prescribed VAT accounting periods 10/18 to 07/19, notified to the College by separate letters from HMRC dated 8 September 2020. The assessments totalled £32,892 (excluding interest) in respect of output tax underdeclared for the period. This amount was subsequently amended and reduced by HMRC to £24,177 in the review conclusion letter dated 20 April 2021. This is the subject of appeal TC/2021/02335. (11) The value of the appealed assessments is £273,764. Education Funding Agency & Skills Funding Agency (12) During the periods covering the appeals, the College was funded primarily by three government agencies: the SFA, the EFA and the Higher Education Funding Council for England (“HEFCE”). This appeal relates to courses funded by the EFA and SFA. The EFA and SFA merged to become the ESFA on 1 April 2017. Nothing materially changed in the funding. (13) The EFA funded the provision of education and vocational training for students aged 19 and under, certain categories of students aged over 19, and students with learning difficulties aged between 19 and 25. (14) The SFA funded all or part of the provision of education and vocational training for students aged 18 and over who have not achieved a specified level of academic qualification, or who are entitled to free education or training due to their personal circumstances and for courses related to areas of the economy that are treated as priority areas for learning. (15) The College receives tuition fees for other students who are not eligible for EFA, SFA or HEFCE funding. (16) The College provides courses to students from age 16 upwards. Students of all ages are educated or trained together, and there is no separation between them on grounds of age. (17) Funding by the Funding Agencies was provided pursuant to s 14 Education Act 2002. The College enters into agreements with the EFA and the SFA each year in relation to the funding that those agencies provide. The agreements are in standard form and are not negotiable. The agreement with the EFA was described as the ‘Conditions of Funding Agreement’. The agreement with the SFA was described as a ‘Financial Memorandum’. The agreements are lengthy and refer to (and incorporate by reference) a series of other documents (some of which are in electronic form and are published on the internet). Taken together, these agreements and the other associated documents set out the basis on which the agencies will fund the College and the obligations placed on the College to deliver education and vocational training and to provide information to the funding agencies. (18) Neither the SFA nor the EFA agreements set out the courses that the College must provide. But the College was only funded by these agencies for the provision of courses leading to qualifications that have been approved by the Government and which are listed on a website maintained by the Government. Theoretically, the College could have provided courses leading to qualifications that have not been approved – but it would not have been funded by either the EFA or the SFA to provide such courses – and it therefore did not do so. (19) The amount paid by the EFA to the College for any year was calculated on the basis of a national funding formula that incorporates various factors including student numbers in prior years, student retention, provision of higher cost subjects, disadvantaged students, and area costs. This is supplemented by additional funding for high needs students, bursaries and other financial support awarded to individual students. (20) The basic funding allocation was determined by the following funding formula: (Student numbers) x (National funding rate per student) x (Retention factor) x (Programme cost weighting)] + (Disadvantage funding) + (Large programme funding) This amount is then multiplied by the area cost allowance. (21) The funding received by the College from the EFA is determined by the national funding formula and was not a negotiated amount. The terms of the EFA’s funding agreement prohibits the College from charging fees to students for the courses that it funds. (22) The amount paid by the SFA is based upon a monetary funding allocation calculated before the start of the year, but subject to a claw-back for under-delivery against allocation, which is reconciled at the end of the year (and repayable in the following January). No additional payments are necessarily made for over-delivery. (23) The SFA’s Financial Memorandum provides at clause 6.2 that: “The College is free to spend its funding as it sees fit providing it fulfils the conditions of funding imposed by the SFA.” Although paragraph 7 (9), above, refers to an appeal by the College against an 9. assessment for its accounting period 04/16, this assessment was withdrawn by HMRC by a notice issued on 4 June 2025. RELEVANT LEGISLATION 10. The legislation in force during the periods with which these appeals are concerned, as contained in the statement of case for the appeals under references TC/2016/05121 and TC/2018/07245, is set out in the Appendix to this decision. DISCUSSION AND CONCLUSION 11. As noted above, the issue between the parties concerns the Consideration Point. It is common ground that if I am against HMRC on this issue, the output tax assessed on the College was not due and, other than the appeal under reference TC/2021/00091 insofar as it relates to the assessment for its 04/16 VAT accounting period, the College’s appeal must succeed. 12. With regard to the assessment for 04/16, as it was withdrawn by HMRC on 4 June 2025 the Tribunal ceased to have jurisdiction from that date (see Align Technology Switzerland GmbH and another v HMRC [2024] UKFTT 01100 (TC) at [52], citing LS v HMRC and RS v HMRC [2017] UKUT 257 (AAC) at [25]). Accordingly, in the absence of jurisdiction the Tribunal must strike out that part of the appeal that relates to the 04/16 assessment (see Rule 8(2)(a) Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009). 13. Although HMRC reserves its arguments on the Consideration Point, a matter due to be heard by the Court of Appeal in June 2026, the parties agree that this was determined against HMRC by the Upper Tribunal in Colchester Institute Corporation v HMRC [2020] UKUT 368 (TCC) at [65] – [89]. As I am bound by the decision of the Upper Tribunal, it therefore follows that the College must succeed on the Consideration Point. 14. Accordingly, the appeal the appeals are allowed in part. RIGHT TO APPLY FOR PERMISSION TO APPEAL 15. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First- tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 15th AUGUST 2025 Appendix Relevant Legislation Unless otherwise stated the legislation set out below is as in force during the period with which these appeals are concerned. Principal VAT Directive – Directive 2006/112/EC (‘PVD’) Article 2(1) of the PVD provided in relevant part “The following transactions shall be subject to VAT:… (c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;…” Article 9(1) of the PVD provided: “ ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity. Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.” Article 26(1) of the PVD provided: “Each of the following transactions shall be treated as a supply of services for consideration: (a) the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible; (b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.” Article 168 of the PVD provided: “In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay: (a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;…” Article 173 of the PVD provided: “1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible. The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person. 2. Member States may take the following measures: (a) authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector; (b) require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector; (c) authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services; (d) authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein; (e) provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.” Value Added Tax Act 1994 (“VATA”) Section 1 of VATA provided in material part: “(1) Value added tax shall be charged, in accordance with the provisions of this Act— (a) on the supply of goods or services in the United Kingdom (including anything treated as such a supply),…” Section 4 of VATA provided: “(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him. (2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.” Section 5(1) - (2) of VATA provided: “(1) Schedule 4 shall apply for determining what is, or is to be treated as, a supply of goods or a supply of services. (2) Subject to any provision made by that Schedule and to Treasury orders under subsections (3) to (6) below— (a) “supply” in this Act includes all forms of supply, but not anything done otherwise than for a consideration; (b) anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.” Sections 24 and 25 of VATA addressed matters including input tax and credit for input. S. 26 of VATA provided: “(1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below. (2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business— (a) taxable supplies; (b) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom; (c) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection. (3) The Commissioners shall make regulations for securing a fair and reasonable attribution of input tax to supplies within subsection (2) above, and any such regulations may provide for— (a) determining a proportion by reference to which input tax for any prescribed accounting period is to be provisionally attributed to those supplies; (b) adjusting, in accordance with a proportion determined in like manner for any longer period comprising two or more prescribed accounting periods or parts thereof, the provisional attribution for any of those periods; (c) the making of payments in respect of input tax, by the Commissioners to a taxable person (or a person who has been a taxable person) or by a taxable person (or a person who has been a taxable person) to the Commissioners, in cases where events prove inaccurate an estimate on the basis of which an attribution was made; and (d) preventing input tax on a supply which, under or by virtue of any provision of this Act, a person makes to himself from being allowable as attributable to that supply. (4) Regulations under subsection (3) above may make different provision for different circumstances and, in particular (but without prejudice to the generality of that subsection) for different descriptions of goods or services; and may contain such incidental, supplementary, consequential and transitional provisions as appear to the Commissioners necessary or expedient.” Sub-sections73(1)-(2) VATA provided (as at the date of the Assessments): “(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him. (2) In any case where, for any prescribed accounting period, there has been paid or credited to any person— (a) as being a repayment or refund of VAT, or (b) as being due to him as a VAT credit, an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.” Paragraph 5(4) of Schedule 4 to VATA provided in material part: “(1) … where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, that is a supply by him of goods.” Finance (No.3) Act 2010 (“2010 Act”) Para. 4 of Schedule 8 to the 2010 Act provided: “(1) Sub-paragraph (2) applies where— (a) a person carrying on a business or any of that person's predecessors has been allowed credit under sections 25 and 26 of VATA 1994 for input tax on the basis that the input tax is attributable to a thing done or to be done which is or would be a paragraph 5(4) supply, (b) some or all of that credit was allowed before 22 January 2010, (c) disregarding sub-paragraph (2), the thing done or to be done is not or would not be a paragraph 5(4) supply, and (d) the credit allowed as mentioned in paragraph (a) is not reversed in full. (2) The thing done or to be done is to be treated for the purposes of VATA 1994 as if it were or would be a paragraph 5(4) supply. (3) But sub-paragraph (2) does not confer on the person allowed credit as mentioned in sub-paragraph (1)(a) any entitlement to that credit under sections 25 and 26 of that Act. (4) For the purposes of sub-paragraph (1) credit for input tax is “allowed” under sections 25 and 26 of VATA 1994 to the extent that the credit is claimed, and the claim is satisfied by one or more of the following— (a) the deduction of input tax under section 25(2) of that Act from any output tax that is due to the Commissioners; (b) a payment by the Commissioners in respect of the credit under section 25(3) of that Act; (c) the setting off of the credit against a sum payable to the Commissioners, whether under section 81(3) of that Act or section 130 of FA 2008 or otherwise. (5) In this paragraph— “paragraph 5(4) supply” means a supply under paragraph 5(4) of Schedule 4 to VATA 1994 (goods held or used for the purposes of a business which are put to private use etc); “predecessor” has the same meaning as in paragraph 5 of that Schedule. (6) This paragraph is to be treated as having always had effect. The Value Added Tax Regulations 1995 (‘1995 Regulations’) Regulation 102 of the 1995 Regulations provided, in material part, as in force from 1 April 2009 to 31 March 2010: “(1) … the Commissioners may approve or direct the use by a taxable person of a method other than that specified in regulation 101. (1A) A method approved or directed under paragraph (1) above— (a) shall be in writing, (b) may attribute input tax which would otherwise fall to be attributed under regulation 103 provided that, where it attributes any such input tax, it shall attribute it all, and (c) shall identify the supplies in respect of which it attributes input tax by reference to the relevant paragraph or paragraphs of section 26(2) of the Act… … (3) A taxable person using a method as approved or directed to be used by the Commissioners under paragraph (1) above shall continue to use that method unless the Commissioners approve or direct the termination of its use … … (5) Any approval given or direction made under this regulation shall only have effect if it is in writing in the form of a document which identifies itself as being such an approval or direction. … (9) With effect from 1st April 2007 the Commissioners shall not approve the use of a method under this regulation unless the taxable person has made a declaration to the effect that to the best of his knowledge and belief the method fairly and reasonably represents the extent to which goods or services are used by or are to be used by him in making taxable supplies. (10) The declaration referred to in paragraph (9) above shall— (a) be in writing, (b) be signed by the taxable person or by a person authorised to sign it on his behalf, and (c) include a statement that the person signing it has taken reasonable steps to ensure that he is in possession of all relevant information.” Reg 116E provided, in material part: “… the value of a relevant supply is the amount determined using the formula A B× (C × U%) where— A is the number of months in the prescribed accounting period during which the relevant supply occurs which fall within the economic life of the goods concerned; B is the number of months of the economic life of the goods concerned or, in the case of an economic life commencing on 1st November 2007 by virtue of regulation 116L, what would have been its duration if it had been determined according to regulation 116C or 116G as appropriate; C is the full cost of the goods excluding any increase resulting from a supply of goods or services giving rise to a new economic life; and U% is the extent, expressed as a percentage, to which the goods are put to any private use or used, or made available for use, for non-business purposes as compared with the total use made of the goods during the part of the prescribed accounting period occurring within the economic life of the goods.” 10