VAT – Research is still ‘out of scope’

Posted on July 22, 2013 by


Although the HMRC has said that research should still be seen as ‘Out of scope’ for VAT, some universities and hospitals have taken the upcoming loss of VAT exemptions for charities to mean that research funded by charities should be subject to VAT.


Currently, charity funded research is not subject to VAT for two reasons: research is ‘out of scope’ of VAT; charities and universities are both ‘eligible bodies’, so exempt from VAT.

From 1 August 2013, HMRC is removing the ‘VAT exempt’ category for services between eligible bodies. But  ‘research’ is still seen as ‘out of scope’ for VAT, so this should not make a difference for charity-funded research.

However, over the years, research finance teams have coded charity-funded research as ‘exempt’, rather than ‘out of scope’. As HMRC have  not confirmed if this change will only apply to new grants, or for all ongoing research (including those grants awarded before August 2013), some finance departments are now informing charities that their invoices for research projects which were coded as ‘exempt’ will be subject to 20% VAT from 1 August. They should in fact be re-coded as ‘out of scope’.

The HMRC have published a briefing  that states that funding is outside the scope of VAT when it is for:

  • research which is funded for the ‘general public good’ and there is no direct benefit for the funding body
  • research which is funded for the general public good and is either not expected to generate any intellectual property (IP), or if it does then any reports or findings will be freely available to others

The British Universities Finance Directors Group (BUFDG) [] have advised their members to check that grants are properly coded for VAT – as many have been coded as ‘exempt’, as it led to the same zero-rate.

research teams will need to review any contracts which currently rely on the exemption. In line with our earlier view, I would strongly recommend that you look the at RCB10/13 which make it clear that most agreements are outside the scope and will remain so.

What is AMRC doing?

AMRC is working with colleagues in universities and HMRC to ensure that finance departments know what to do, and that the transition process is made clear.

What should AMRC members do?

If you are asked to pay VAT on a research project, you should refuse and refer the finance department to the HMRC briefing, stating the fact that the activity is research that is funded for the public good and that information that comes from it will be made freely available to others. This satisfies HMRC’s definition of research, and is ‘out of scope’ for VAT.

Posted in: Research