HMRC are consulting on changes to the VAT exemptions for research. Currently, research is exempt from VAT either because it is grant funded, or because it is being supplied between ‘eligible’ bodies including charities, universities and government departments. The European Commission has told the UK Government that this second exemption is not acceptable, and the UK plans to withdraw it from 1 August 2013.
What does this mean for charities?
We think this will particularly affect grants where applicants come from more than one university (as there are subcontracts between institutions). It may also affect how we define the terms and conditions of applied research (to clarify charities interest in Intellectual Property).
A bit more detail..
HMRC classifies research in three ways
i)- Outside the scope research (non-business research) - research that is block-funded or grant-funded; this is often carried out by universities. This type of research is generally for the public good and the body funding it (e.g. one of the research councils) does not receive any supply of goods or services in return for the funding. Typically, the research does not give rise to intellectual property that will be exploited.
ii). Standard-rated research (business research) - contracted research (carried out for business purposes) supplied between two commercial organisations or between a commercial organisation and an eligible body, such as a university or a charity. Typically this type of research will give rise to intellectual property which will likely be of value to the commissioning body.
iii). Exempt research (business research)- any research that is supplied between two eligible bodies (eligible bodies include Government departments, schools, universities, charities and other public bodies).
Currently "outside the scope research" and "exempt research" are exempt from VAT. They are looking at ending this VAT exemption for "exempt research"
This may have implications for:
- Large grants to more than one university. In this case the research between the funder and the main university is "outside the scope research". But the activity between the main university and sub universities is 'exempt' & so will be subject to 20% VAT
- Applied research where the funder has an interest in IP and how it is used post-award.
What is AMRC doing?
We are working with colleagues in universities, other expert groups and with HMRC to determine the extent of this change. We will be responding to the consultation which closes on 14 March 2013. To inform this we will soon be asking research contacts at our member charities for information about particular aspects of funding.
If you are concerned about this issue, or need advice about how to answer the consultation questions, please contact me