A tax tribunal found in favour of HMRC, which sent out a statement on the news.
HMRC said Huddersfield had recovered more VAT than it was entitled to on the costs of refurbishing leasehold property.
“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,” said HMRC.
An earlier first-tier tribunal had backed the university’s position, but the upper tribunal has now found in HMRC’s favour. “It found that the scheme was entered into for no other reason than to claim VAT that [the university] would not otherwise have been entitled to,” said HMRC.
The agency also said the case “relates to £612,000 of VAT claimed…in 1996”.
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,” HMRC added. “The leases collapsed in 2004.”
Jennie Granger, director general for enforcement and compliance at 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.”
A Huddersfield spokesman said the university “has been required by HMRC to pay VAT on costs incurred in 1996 in making an award-winning conversion of a once derelict mill in Huddersfield, which now houses its School of Computing and Engineering.”
He added: “HMRC ruled in 2000 against a technical aspect of the university’s financing of the scheme, taken out in good faith following professional legal advice. The university challenged HMRC’s ruling and won its case in court, but the judgement was overturned on appeal.
“The university has the right to request leave to appeal the latest decision of the court in favour of HMRC and is currently considering its options.”