The VAT Case Every College Finance Team Should Be Watching

4 days ago
2 min read

Date | 10th April 2026

Buried between a capital funding announcement and a rapidly approaching bid deadline, there's a Court of Appeal ruling this week that could quietly reshape how colleges are taxed. Finance directors already know about it. Everyone else should.

What Colchester Institute just won

Colchester Institute beat HMRC at the Court of Appeal last week in a VAT dispute dating

back to a 2008 building project. The court ruled that grant-funded education counts as "business activity" for VAT purposes, which means the college can reclaim tax on the capital spend.

Sounds technical. The money involved isn't. Between 20 and 30 other colleges reportedly have similar claims sitting in a drawer, including Portsmouth, Cornwall and Derby. Some of those figures run into seven digits.

And here's the bit that makes finance teams nervous. If grant-funded teaching is reclassified as business activity across the sector, colleges could lose zero-rated VAT reliefs on new builds and reduced rates on fuel and power. One door opens, another swings shut. HMRC has until 24 April to decide whether to take the case to the Supreme Court. The sector is holding its breath.

£307 million for buildings, 1.6% for everyone

While that plays out in the courts, the DfE quietly published next year's condition funding: £307 million for 175 colleges, a 1.6% rise on last year. Look at the spreadsheet and the picture gets messier. Roughly a third of colleges got less than the year before. Fircroft College's allocation jumped 283%; West Nottinghamshire lost half a million.

Julian Gravatt at the AoC made the obvious point: money for buildings is welcome, but colleges "desperately need adequate funding for increasing student numbers." You can patch a leaking roof and still lose three teaching staff to a school down the road that pays better.

£287 million in capital bids, clock's ticking

There's a separate pot easy to miss in the noise. The post-16 and construction skills capacity fund has £287 million available nationally for 2026 to 2030, with bids closing at 5pm on Friday 17 April. Individual bids sit between £250,000 and £5 million. Devolved regions are handling their own £283 million split across 18 combined authorities and councils.

If your estates team hasn't submitted yet, next Friday is the wall.

FE teacher training: quieter changes, real implications

One more to flag for quality leads and HR. From this month, providers delivering FE initial teacher training must register with the government, submit mandatory student data, and follow new curriculum and delivery guidance. Milton Keynes College Group became the first FE provider to be inspected under the new Ofsted ITE framework. It picked up "Strong" in five areas and "Expected" in three.

Less fanfare than apprenticeship units got, but the compliance lift is real if your college runs its own programmes.

The capacity funding deadline hits next Friday. The HMRC decision could come any day after 24 April. Worth having both in the diary.