Publicly-funded research – VAT implications

Grants provided by central government to fund research (as opposed to research commissioned by government) are generally paid by the granting body to fulfil its statutory and public duties to fund research rather than to secure a benefit for it or for any third parties. In those cases the grant does not constitute consideration for a supply made in the course of business for VAT purposes because the research is generally for the public good and the body funding it does not receive a specific supply of goods or services in return for the funding.

If research is funded in part by grants and in part by matched funding from commercial participators, there may be supplies in the course of business where benefits are provided to the commercial funders in return for their payments. The status of the body providing the funding is not the issue; the test that will determine whether or not a supply is being made in the course of business for VAT purposes is this: ‘what, if anything, is required to be provided in return for the funding?’.

Also, with effect from 1 August 2013, the VAT exemption for supplies of business research services between ‘eligible bodies’ has been withdrawn. Under the VAT regulations, an ‘eligible body’ is defined as a school, university, a college, an FE and HE institution etc. Eligible body also includes bodies which are precluded from distributing, and do not distribute any profits made from the supply of education, and should a profit be made, then these are used for the furtherance and continuance of the supplies of education. These supplies are now subject to VAT at the standard rate of VAT.

For further information charities should read HMRC VAT information sheet 11/13: supplies of research between eligible bodies.

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