Cornwall College v The Commissioners for HMRC

Introduction

1. The Appellant, Cornwall College (the “ College ”), appeals against the 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 issue between the parties concerns certain grants received by Further Education Colleges, such as the College, from two government funding agencies 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 111 pages. This included a Statement of Agreed Facts, the College’s Notice and Grounds of Appeal, the statement of case and the witness statement of Mathew Davies ACCA, the Financial Controller of the College. Facts

4. Mr Davies has been the Financial Controller of the College since February 2023. He is responsible for the preparation of management accounts, procurements, transaction processing and ensuring financial control.

5. In his statement Mr Davies refers to a document, Summary of Funding Processes prepared by Gary Horne of Colchester Institute Corporation. The document describes the procedures for funding received before 1 April 2017 from the Education Funding Authority (“ EFA ”) and the Skills Funding Agency (“ SFA ”) the government funding agencies that provided funds to Further Education Colleges. Having compared these with the College’s SFA EFA Income Reports for 2014-15 and 2015-16, which show the allocation of funds received from the SFA and EFA and mirror the SFA and EFA Allocation Statements, Mr Davies confirmed that the basis of funding received by the College is “entirely consistent” with that set out in the Summary of Funding Processes document. Statement of Agreed Facts

6. The following Statement of Agreed Facts was produced by the parties: Background of Cornwall College (1) The 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 32. The College is categorised by the Department of Education as a general further education college. (2) Its campus is in Redruth, Cornwall. The College is a provider of further and 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 a review decision of HMRC, made on a statutory review under s 83C VATA, set out in a letter from HMRC to the College dated 19 October 2016 (the “ Review Decision ”). (7) The Review Decision upheld a rejection of a repayment claim for the period 10/15 with adjustment to a payment due and an assessment of VAT made under s 73 VATA in respect of Cornwall’s prescribed VAT accounting periods 07/15, 01/16 and 04/16 (the “ Periods ”) notified to the College by a letter from HMRC dated 21 June 2016 (the “ Assessments ”). (8) The Assessments were for a total of £172,855.68. Within that amount, £46,114 was assessed in respect of output tax underdeclared for the period 10/15, £59,366 for the period 07/15, £46,114 for the period 01/16, and £21,261 was assessed in respect of output tax underdeclared for the period 04/16. These represented output tax adjustments for ‘Lennartz’ accounting purposes. (9) The Assessments were subsequently amended on 19 July 2022 to reduce the output tax assessments for ‘Lennartz’ accounting purposes to £114,451.68. This amendment was due to a revision of the amount due because £87,435 of the amount assessed fell beyond the point of “Fiscal Balance”. The amount for VAT assessment for VAT period 04/16 was withdrawn and the assessment for VAT period 01/16 was reduced to £8,971 (a total reduction of £58,404), leaving the revised total at £114,451.68. Education Funding Authority & Skills Funding Authority (10) In both the academic years 2014/2015 and 2015/2016 (as with preceding years) the College was funded primarily by three government agencies: the Skills Funding Agency (“ SFA ”), the Education Funding Agency (“ EFA ”) and the Higher Education Funding Council for England (“ HEFCE ”). This appeal relates to courses funded by the EFA and SFA (the “ Funding Agencies ”). (11) 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. (12) 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. (13) The College receives tuition fees for other students who are not eligible for EFA, SFA or HEFCE funding. (14) 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. (15) 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. (16) 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. (17) 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. (18) 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. (19) 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. (20) 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. (21) 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.” Relevant Legislation

7. The legislation in force during the Periods, which I have taken from HMRC’s Statement of Case, is set out in the Appendix to this decision. Discussion and Conclusion

8. 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 its appeal must succeed.

9. 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 the Consideration Point was determined against HMRC by the Upper Tribunal in Colchester Institute Corporation v HMRC [2020] UKUT 368 (TCC) at [65] – [89].

10. As I am bound by the decision of the Upper Tribunal it follows that the College must succeed on the Consideration Point.

11. The appeal is therefore allowed. Right to apply for permission to appeal

12. 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: 11 th AUGUST 2025