City of Portsmouth College v The Commissioners for HMRC

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 Act ing Finance Director.

5. In his statement Mr Lambe refers to two documents, Summary of Funding Processes 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. (2) Its campus is in Portsmouth, Hampshire. 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 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.”

9. Although paragraph 7 (9), above, refers to an appeal by the College against an 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: 15 th AUGUST 2025