The Commissioners for HMRC v Colchester Institute Corporation

A payment is consideration for VAT purposes where, under the relevant legal arrangements, it is provided in return for identifiable services. The payer need not be the service recipient, and the price need not be separately fixed for each supply. A flat or lump-sum payment may qualify where its amount is fixed or ascertainable by established criteria.

Public funding must be distinguished from a general subsidy paid merely on condition that the recipient carries on an activity. The court must analyse the agreement and the whole circumstances, including the nature of the services, recipients, funding formula, adjustments and benefits. No single factor is determinative. Funding calculated by reference to eligible students and courses, with delivery-related adjustments, can have a direct link even if the precise recipients and amount are not known in advance.

HMRC appealed from the Upper Tribunal’s decision in [2024] UKUT 00397 (TCC), which dismissed HMRC’s appeal concerning VAT period 11/15–01/16. The Upper Tribunal had followed its earlier decision in [2020] UKUT 368 (TCC), holding that funding received by Colchester Institute Corporation from the Education Funding Agency and Skills Funding Agency was consideration for education and vocational training supplied to eligible students.

HMRC challenged the treatment of Rayon d’Or and the application of the direct-link requirement. The central questions were whether the funding was consideration for supplies to students or general funding conditional on the provision of education, and whether the statutory and contractual arrangements established sufficient reciprocity.

Appeal dismissed. Lord Justice Foxton gave the principal judgment. Lord Justice Arnold and Lady Justice Asplin agreed.

1. Ground 1. The Upper Tribunal went too far in treating Rayon d’Or as involving no Kennemer-type supply. The CJEU had relied, at least in part, on the permanent availability of healthcare to residents. The decision was not, however, wholly dependent on that classification. It also supported the conclusion that a lump-sum payment, calculated in advance by established criteria, may be consideration for continuing services. Rayon d’Or did not determine the present appeal because the legal relationships, recipients and funding arrangements were materially different, but it provided considerable support for the respondent’s case.
2. Ground 2. The direct-link inquiry asks whether the payer was funding specified activities on conditions or paying for supplies made to the payer or identified recipients. The starting point is the relevant agreement, followed by an analysis of the whole circumstances. The statutory context, the provider’s autonomy, the identity of recipients, the funding formula, delivery adjustments and clawback provisions were relevant, but none was a threshold requirement or conclusive.
3. The EFA and SFA agreements strongly indicated reciprocal performance. They required CIC to provide approved courses to learners and students, calculated funding by reference to student numbers and course characteristics, and made adjustments where delivery differed from assumptions. The receipts issued to students reinforced that CIC supplied the same courses to funded and unfunded students, with the funding relieving eligible students of fees.
4. The absence of a contract between the Funding Agencies and students did not break the link. Nor was it necessary to show that every element of the funding was consideration. It was sufficient that a substantial and identifiable part of the funding was paid in return for the courses supplied to eligible students. The funding therefore constituted consideration for VAT purposes under the Principal VAT Directive (2006/112/EC). Ground 2 failed and the appeal was dismissed.

• Court of Appeal (Civil Division): HMRC’s appeal from [2024] UKUT 00397 (TCC) was dismissed. Ground 1 was partly accepted as to the Upper Tribunal’s characterisation of Rayon d’Or, but Ground 2 was rejected.
• Upper Tribunal (Tax and Chancery Chamber): Judge Raghavan dismissed HMRC’s appeal on 4 December 2024 in [2024] UKUT 00397 (TCC) and refused permission to appeal on 11 February 2025.
• First-tier Tribunal: The appeal concerning VAT period 11/15–01/16 was determined in CIC’s favour on 4 March 2024. The issue had been stayed pending the earlier Upper Tribunal decision in [2020] UKUT 368 (TCC).