HL Deb 10 November 1988 vol 501 cc731-2

3.14 p.m.

Lord Nugent of Guildford asked Her Majesty's Government:

Whether they will increase their subvention to the Universities Funding Council to compensate for the loss of revenue which universities will suffer as a result of the decision by Customs and Excise to charge VAT on gifts by private companies to universities.

Viscount Davidson

My Lords, I am glad to have this opportunity to clear up a general misunderstanding. There is no VAT on unconditional gifts of money to universities. Nor does the mere acknowledgment of such support attract VAT. However, VAT is chargeable where payment is conditional upon a university's supplying clearly identifiable benefits in return, such as advertising or publicity. This has always been the position and each case is considered on its particular facts.

Lord Nugent of Guildford

My Lords, I thank my noble friend for that helpful Answer. Is he aware that recent press reports state that the Customs and Excise are applying a more stringent test to gifts made by donor companies to universities and colleges? Can he confirm that the Customs and Excise has not changed the basis of the test and is applying a common-sense policy to such very desirable gifts?

Viscount Davidson

My Lords, I am aware of the press reports which are based on a misunderstanding. In order to avoid any further misunderstanding in this area I should like to point out that today the Customs and Excise is issuing a press release on the subject.

The Earl of Halsbury

My Lords, the Minister's Answer avoided a grey area. Normally VAT is charged by seller to buyer and the seller must then account for it to the Government, less any VAT he has paid. Where a university accepts an industrial contract for research would it include that in its bill to the commercial customer and then account for it to the revenue authorities? That appears to be a grey area which has not been covered by the noble Viscount's Answer.

Viscount Davidson

My Lords, to the extent that tax is incurred which can be directly attributed to its taxable activities, the university will be able to deduct input tax under the normal rules. In that respect the university will be in the same position as any other taxpayer. However, I remind your Lordships that most universities are registered for VAT because they make taxable supplies, such as holiday lettings and accommodation, sports facilities, concerts and bar sales. Therefore there will be no charge made on them.

Lord Peston

My Lords, I thank the noble Viscount for a reassuring Answer. The statement to be made by the Customs and Excise will reassure universities. However, the Question referred specifically to gifts; it did not refer to other activities in which universities might engage for business enterprises. Is one correct in understanding that gifts will not be subject to VAT?

Viscount Davidson

My Lords, providing that no other benefits are supplied in return, such as advertising or the making available of the university facilities to the company, VAT does not apply. Companies which are charged VAT are able to recover it from Customs and Excise through the VAT credit mechanism. Most financial support is outside the scope of VAT. The Government have no wish to impose unnecessary tax on a means of helping universities. However, the VAT EC law must be observed.

Baroness David

My Lords, the Minister's Answer was reassuring. Does it apply also to individual colleges which may have appeals for endowments and so forth?

Viscount Davidson

My Lords, the Committee of Directors of Polytechnics and the Standing Conference of College Principals have recently proposed that after 1st April 1989, when they leave local authority control, they should enjoy the same VAT exception as universities. Discussions with Customs and Excise officials are continuing and I am sure that my right honourable friend the Chancellor of the Exchequer will consider the case carefully.

Baroness David

My Lords, I thank the Minister for his reply but perhaps I did not make myself clear. I was referring not to polytechnics and colleges in the public sector but to colleges in the university sector which may have their own appeals. Does the situation apply to them?

Viscount Davidson

My Lords, I am afraid that I do not have an answer to that question but I shall write to the noble Baroness.