RESEARCH VAT GUIDANCE

 1. VAT incurred on business entertaining including the expenses of staff acting as hosts, is not recoverable. VAT incurred on the purchase of cars by the University is similarly non-deductible. N.B. If undergraduates or taught postgraduates are involved in vatable research projects, VAT incurred on related purchases can only be recovered in part. This is because the VAT will be attributable to both vatable supplies of research and exempt supplies of education and training. No similar restriction on VAT recovery occurs where research postgraduates work as research assistants on a vatable research project. Please contact the Tax Unit if you require further advice (Ext. 2475 or 2379).

2. Evidence of the business status of your customer must be obtained. This will be their VAT registration number if they are VAT registered and this must be quoted on the University’s sales invoice. The sales invoice must also contain a ‘reference statement’ which indicates the VAT treatment applied to the transaction by the University: ‘Subject to reverse charge in the country of receipt’. N.B. If you believe that the University is making a supply of research services to an EU University, or to a Government Department in another EU Member State, you should contact the Tax Unit for advice (Ext.2475 or 2379). This is because it is unclear whether VAT incurred on such projects will be recoverable and whether the University’s income should be treated as zero rated or exempt.

3. For the ‘Public Good’ – Research funded for the ‘public good’ does not constitute a supply for VAT purposes. This will include grants provided by Central Government which are generally paid in order to fulfil the funding body’s statutory and public duties to fund research and not to secure a benefit for it or any third parties. N.B. Any requirement to transfer Intellectual Property Rights (IPR) to the funder enables the Government to recoup its grant should the research produce income generating IP and is deemed a protection measure rather than a means of securing a consumable benefit. Whilst not absolute, HMRC considers that the majority of publically funded research is generally for the public good; no supply of goods or services is received in return for funding which is, therefore, outside the scope of VAT. However, it is not the nature of the funder that determines whether or not a supply takes place for VAT purposes, but whether the funder receives any benefit in return for the payment and each project must be considered on its own merits e.g. whether the arrangements between the parties contain the essential elements of a supply.

4. ‘Philanthropic Donation’ – Careful consideration is required before a decision can be made as to whether funding (whole or part) from a commercial sponsor constitutes a donation for VAT purposes. For example, what is the objective of the funder? Is it the production of specific results/deliverables which could be commercially exploited, or is it the generation of knowledge in a general area of study or in the public interest? Are there any benefits which can be deemed incidental to the primary purpose of the project? Will the level of any benefits obtained have only a minimal relation to the amount of the funding provided? Where there are areas of doubt e.g. restrictions are placed on the University and undertakings given which could be argued may provide the sponsor with some direct benefit should IP be generated, the key issue is whether the ‘philanthropic’ principles of funding the project are such that any benefits which may be obtained by the sponsor are not a means to an end in their own right, or whether the sponsor is obtaining sufficient rights for there to be an element of a supply for VAT purposes. This would determine whether a composite supply (where there is a predominant element to which everything else is incidental and the dominant supply determines the overall VAT treatment) or a mixed supply (which has several elements where each could serve as a purpose in its own right; the VAT treatment of each element would have to be identified) takes place. The decision may be rather subjective. N.B. There is no supply for consideration if the sponsor only indirectly receives the benefit e.g. if the benefits accrue to the industry as a whole.

5. ‘Eligible Body’ for Research Purposes includes a:

• UK University and any college, institution, school or hall of such a University (includes any company controlled by a University which makes exempt supplies of education), a sixth form college, tertiary college or further education college or other centrally funded higher or further education institution (defined as such under the Education Acts) or the governing body of one of these institutions
• UK Public body e.g. local authority, government department, executive agency, health authority, other non-profit making body that carries out duties of an essentially public nature similar to those carried out by a local authority or government department
• Non-profit making organisation that meets certain conditions i.e. a body which is precluded from distributing and does not distribute any profit it makes and applies any profits made from supplies of education and research to the continuance or improvement of such supplies.