HMRC refers to research as original investigation undertaken in order to gain knowledge and understanding. A supply is one of research whenever the activities are directed towards increasing areas of knowledge or understanding.

From VAT perspective research does not include consultancy, business efficiency advice, market research or opinion polling, collection and recording of statistics without accompanying collation, analysis and interpretation, routine testing and analysis of materials.

Research outside of the scope of VAT

In general, research is outside the scope of VAT when it is funded by the public sector or charitable sector for the wider public benefit. This is only a general rule of thumb, and each case needs to be considered on its own merits.

When determining whether research falls within the scope of VAT or not, it is important to establish if there is a supply for the consideration paid i.e., whether there is a direct link between then amount received and service provided to the funder. Where the funder receives any benefit or deliverables in return for the fund received, it is likely that a research would be vatable.

Grants received from UK Central Government, Research Councils and UK Charities which are generally paid in order to fulfil the funding body's statutory and public duties to fund research. Where there is no material benefit to the funding body or any third party, such grants would be outside of the scope of VAT.

Research within the scope of VAT

Where there is a direct and immediate link between consideration received and a service provided, this indicates the supply of service and VAT must be charged on such supply.

In this case, the funder would be seen to obtain a material benefit from the work done and hence will involve a supply of service. Ways to identify whether there is a supply of service include:

• The outcome of the work would only benefit the funder’s business and not the wider public.
• If the funder intends to obtain exclusive right over IP generated from the research project.
• Where the funder gains early use of IP or research report before being published, resulting in a time advantage, this could potentially result in the supply of service.

Contract research

A funder may commission the University to carry out research for them, and for an agreed consideration. Although the funder usually initiates contract research, the university may in fact approach potential clients who may have an interest in a research and ask them to fund it. As this type of research outcomes would benefit the funder who may retain full ownership of the results, it should be considered as taxable business activity liable to VAT.

You would find that, funder of contract research generally retains full ownership of the research and any IP generated, and it is likely that the research findings cannot be released into the public domain. These are indicators of research activity being of a commercial nature and should be liable to VAT at the standard rate.

If funder commissioning research to UOB is from the EU or elsewhere overseas, we need to obtain evidence of their overseas VAT registration number, alternatively a letter from them stating that they are in business but not VAT registered. We do not charge the funder VAT and they will apply reverse charge to account for the VAT in their own country.

Collaboration Research

This is a type of research whereby a number of independent organisations, typically universities or other eligible bodies get together to apply for grant funding to undertake a research project. Typically, one of the organisations is referred to as that lead body, and the others would be named parties. The lead organisation deals primarily with the funding body including receiving funding which is then distributed to the named parties as appropriate for their contribution to the research project.

It is common for contracts to be finalised in just the name of the lead organisation and the research funder in collaborative research project. The research services provided by each named party involved in the research project are outside the scope of VAT, as no supply occurs between the parties.

With collaborative research it is important to obtain evidence that all organisations involved are participating in collaborative research, this would in most cases be demonstrated in the lead application for funding, by showing or listing who all the collaborative organisations are and their contributions to the research, and by the project lead providing collaboration agreements to the other organisations.

Subcontract research

When the University of Bath (UoB) receives grant from a project lead (not the funder), for VAT purposes the UoB needs to establish whether it is a sub-contractor to the project lead or a project collaborator. This distinction also applies when UoB as lead passes grant to another organisation.

Subcontract services usually take place when a supplier organisation/individual provides a chargeable supply of service for the direct benefit of the project lead organisation. The supplier organisation/individual is not a collaborator in the project.

Subcontract research is the same as contract or commissioned research, although it has the features of research the lead organisation providing the funding is the main beneficiary. The supplier organisation/individual is not a collaborator in the project.

A UK supplier of subcontract research or services is likely to charge VAT. If the supplier organisation/individual is based overseas the UK project lead organisation is likely to have to account for VAT reverse charge which will usually be a cost to the project.

To decide if an organisation or individual is acting as a collaborator or sub-contractor, complete the Collaborator or sub-contractor for VAT purposes template. The completed template is then reviewed with the lead bid and collaboration agreement.

VAT on research between other eligible bodies

An exemption from VAT for business research supplied between eligible bodies was withdrawn on 31 July 2013. All contracts for such research entered after 1 August 2013 would normally fall to be treated as subject to VAT. Further information on the withdrawal of the VAT exemption for supplies of research can be found on the HMRC website.