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.

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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.¡±

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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.

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¡°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.¡±

john.morgan@tesglobal.com