Research income
This page explains the role of VAT in research income and expenditure.
What is research?
HMRC define research as “original investigation undertaken in order to gain knowledge and understanding”.
The intention at the beginning of a project determines whether a supply qualifies as research. If the intention is to advance knowledge and understanding, the supply is one of research.
Work carried out which simply uses, applies or confirms existing knowledge and understanding is not research. For example, consultancy which interprets existing knowledge and advises on its application OR performing tests using established scientific principles and knowledge are not research activities. They are business supplies and subject to VAT at the standard rate. The following are further examples of work which will not qualify as research:
- Consultancy and business efficiency advice;
- Collection and recording of statistics where no analysis or interpretation is undertaken;
- Market research and opinion polling;
- Writing computer programmes; and
- Routine testing and analysis of materials, components or processes.
Determining VAT liability of research income
Research can either be a standard rated business supply or an outside the scope non-business activity. As a rule of thumb, publicly funded research where the results are published in the public domain and the ownership of intellectual property is shared between the sponsor and the University (or retained by the University) is non-business activity and outside the scope of VAT. Typically, this will be research commissioned by Research Councils, Government Departments, Charities and philanthropy. Research commissioned by industry or business is often a standard rated business supply because the reporting and intellectual property is supplied to the funder exclusively in return for the research funding.
It is important, however, that each research project is evaluated on its own merits when deciding the VAT liability.
Subcontract research
Research supplied to a customer who has been separately commissioned to provide research by a funder is subject to VAT at the standard rate.
If the University collaborates with another eligible body to do research, then both eligible bodies may be treated as a principle under the funding agreement. If the research is assessed to be outside the scope of VAT, then the research performed by all the collaborators will be outside the scope of VAT even if one collaborator acts as the lead institution, receiving funds from the funder and being invoiced by other collaborators for their share. Collaborators must be clearly named as such in the funding application.
There is no general exemption for research supplied between eligible bodies - for example between two Universities. If one University sub-contracts work to another, the research will be a business supply and taxable at the standard rate of VAT.
Non-business research expenditure
Non business research (such as that funded by grants from funding councils, charities and government) is outside the scope of VAT. Any VAT on costs that relate directly to such research cannot be recovered.
Business research expenditure
VAT on costs directly related to business research is fully recoverable. This applies to all overseas business funders, whether or not we charge them VAT.
VAT on costs from overseas suppliers
Goods imported from outside the UK are liable to VAT, either on import if imported from outside the EU, or as acquisition tax if imported from the EU.
VAT is also charged on most services received from outside the UK through a reverse charge.
VAT on research costs from overseas suppliers cannot be recovered on non-business research expenditure, but is fully recoverable on business research expenditure.