Axing of research exemption sparks confusion

The VAT exemption for supplies of research between eligible bodies is to be withdrawn, in a move that has led to some confusion.

An HMRC consultation on mitigating the impact of the change has identified a lack of clarity in the distinction between supplies of research outside the scope of VAT, and exempt business supplies that will be affected by the withdrawal.

The taxman has issued Revenue and Customs Brief 10/13 on the matter and plans to contact taxpayers who have already provided data to confirm their figures in light of the new guidance.

The consultation has shown that a significant amount of research is collaborative. In such situations, one organisation tends to deal with the funding body, passing on the money to the other applicant bodies. HMRC will accept in such cases that all research services provided by each body involved in a project are outside the scope of VAT.

The department may ask for evidence that bodies are participating in collaborative research: for example, the original application for funding that would, in many cases, show who the collaborative partners are.

There must be a direct and immediate link between consideration paid and a service provided for a supply of services to exist for VAT purposes, says the Revenue, which HMRC, who do not consider such a link to occur when research is funded by the public or charitable sector for the wider public benefit.

The main question to answer is about whether or not the funding is the consideration or part of the consideration for any specific supply. If not, it is outside the scope of VAT, and examples include:

• Research funded for the general public good and there is no direct benefit for the funding body.
• Research funded for the general public good and is either not expected to generate any intellectual property or, if it does, any reports will be freely available to others.
• Collaborative agreement between different research institutions where all parties to the grant are named on the application.
• Funding flows through one named party that acts purely as a conduit passing on the funds to others involved in the research project.

Issue: 4400 / Categories: News , VAT