Update on VAT exemptions for research

Posted on February 27, 2013 by


We reported in January that HMRC were consulting on changes to the VAT exemptions for research and our concerns over the impact on charities.

Currently, research is exempt from VAT when it is grant funded, or because it is being supplied between ‘eligible’ bodies including charities, universities and government departments.  We were concerned that proposed changes would render some parts of  a charity’s  grant subject to VAT, increasing costs.

HMRC have now clarified that these grants should remain exempt from VAT.

What have HMRC said?

Where a funder is providing a grant to one institution, and payment is being made to co-investigators at another institution, this part of the grant would STILL be viewed as ‘outside the scope’ of VAT, providing that there is no benefit to the first institution. Previously we were concerned that these payments to other institutions would be seen as subject to VAT, so increasing the overall costs of the grant.

HMRC have said:

If the funding is provided by the public sector (e.g. government, government departments and research councils) “for the public good” then the funding is not consideration for any supply by the person receiving the funding; it is outside the scope of VAT.

We would also consider that where the funding flows through one named party (A) and they purely act as a conduit passing on the funds, this would also be outside the scope, providing that there is no benefit to A. This would include “collaborative” agreements where all parties to the grant are named.

Although each case will have to be considered in light of the agreement/contract, these clarifications mean that the vast majority of research funded by AMRC members would still be out of scope for VAT, and there would be little impact on our ability to fund from the HMRC’s proposed changes to withdraw the ‘exempt’ category.

What does this mean for charities?

This is great news, as we can now be assured that the changes in VAT exemptions will have minor impact on the research we fund.

What is AMRC doing?

AMRC will be responding to HMRC’s consultation based on this understanding. While the economic impact of the changes are less, we are still concerned that that some of the language is unclear and open to interpretation.

Thank you to all of our members who have provided information, which has been very helpful to demonstrate the issue and will inform our final response to the consultation.

Posted in: Policy, Research