UK uni fined over VAT fraud

A tax tribunal has backed HM Revenue and Customs (HMRC) in yet another tax avoidance case – this time against a university which claimed over £610,000 in VAT.

An HMRC poster alerting the tax evaders in Britain
An HMRC poster alerting the tax evaders in Britain

The University of Huddersfield used the scheme to recover more VAT than it was entitled to on the costs of refurbishing leasehold property.

The case relates to £612,000 of VAT claimed by the University of Huddersfield in 1996. Under the avoidance scheme, the university entered into a circular and self-cancelling lease and leaseback with a Trust it had set up in order to reduce the VAT costs of refurbishing university property. The scheme deferred the VAT charge over the life of the leases, but it was intended to create an absolute saving by collapsing the leases early. The leases collapsed in 2004.

As a supplier of education, much of the university’s activity was exempt from VAT, so it would only have been able to recover a small proportion of VAT on construction costs. To mitigate this, it set up a complex leasing scheme.

An earlier First-tier Tribunal backed the university’s position but the Upper Tribunal (UT) has now found in HMRC’s favour. It found that the scheme was entered into for no other reason than to claim VAT that it would not otherwise have been entitled to. The UT decided that the scheme was abusive and, as a result, the lease and leaseback transactions should be ignored for VAT purposes.

Jennie Granger, Director General Enforcement & Compliance, HMRC, said: “This case offers further evidence that HMRC pursues those who avoid tax and won’t hesitate to litigate if a satisfactory settlement can’t be reached through discussion.

“‘The Upper Tribunal’s ruling also backs a key argument used by HMRC to tackle abusive VAT avoidance. Anyone tempted by avoidance schemes should think long and hard because we have a great record in defeating them in the courts.”