Who is the Colchester Lennartz decision most likely to affect?
The main sector that will be affected by the result is further education.
Why is the college sector being affected?
Activities that Colleges have traditionally considered to be ‘non-business’ have been found to be ‘business’, but exempt from VAT.
How is it going to affect the college sector?
The result means that what was once believed to be non-business activity by HMRC has now been found to be a business activity. For the college sector this means that the fees paid for by local authorities, for non-fee-paying students, is now treated as exempt instead of non-business.
What actions do colleges now have to take?
As well as changing the way in which VAT is accounted for, colleges will also have to amend their Partial Exemption Special Method (PESM) as the current one may be inoperable without adjustment. The practical effect of Colchester is that, in future, PESMs will now be simpler and time efficient.
When do these actions need to be carried out?
There’s no specific deadline but we would recommend not delaying this change to ensure you can optimise your VAT reclaims and recovery.
Noel Tyler, executive chairman, comments:
“Colleges have traditionally calculated their recoverable VAT taking into account “non-business” activity, and as a result of the decision, colleges will need to revise their Partial Exemption Special Methods (PESM).
“Amended methods will certainly benefit the further education sector and will lead to simplification of calculating recoverable VAT. It may even result in more VAT being reclaimable,” Noel concludes.