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The VAT exemption for research is to axed because it does not comply with EU legislation.
The government plans to withdraw the exemption from 1 August 2013, after which date supplies of research between eligible bodies that are currently exempt will become VAT-able at the standard rate.
The change will mean a corresponding increase in the cost of the supply, although this will be offset in part by the ability to deduct input tax against making such supplies.
HMRC have issued a consultation document to assess the impact of withdrawal, and to look in to options to mitigate the impact.
Responses should be sent no later than 14 March 2013 by email or by post to Keith Parnell, HMRC, VAT liability policy team, Room 3/34, 100 Parliament Street, London SW1A 2BQ.
The chairman of the Charity Tax Group, John Hemming, praised the Revenue for its “constructive and sympathetic approach to this difficult issue”.
He said the removal from of the VAT exemption was “most unwelcome, particularly in the present economic climate, but it is the inevitable result of case law decided by the European Court of Justice some years ago and could not have been successfully resisted once the European Commission decided to take proceedings against the UK.
“Fortunately, the majority of the research carried out in the UK by universities is grant-funded and will remain unaffected,” added Hemming.
