R&D Finance VAT Decision Flowchart
VAT on Commercial Funded Research
Invoicing Sponsors
The invoicing of clinical trials involves NUH carrying out research purely for commercial gain and therefore is subject to VAT at standard rate. This assumes that the contracting company resides in a country that falls within the scope of the EU Directives.
Where a company has a parent company or head office that is resident in a country not under the scope of the EU Directives, it is the country of residence of the company, or office, participating in the contract that determines whether VAT is chargeable or not.
If in doubt then contact R&D Finance who will liaise with Nottingham University’s (NUH) VAT advisors.
VAT on NIHR funded projects
This section deals with the VAT consequences of NiHR funded research e.g. the Biomedical Research Units (BRU) and Programme Grants which involve Nottingham University Hospitals (NUH) working in partnership with University of Nottingham and in some cases other institutions.
Grant funded/ Non-business research
Projects that are wholly or partly funded by grants provided by the Department of Health (DOH) are classified as publically funded research. Generally the funding does not secure a commercial benefit for the DOH or any third parties and therefore the grants do not constitute consideration for a supply to DOH and are thus outside the scope of VAT.
The research carried out, to the extent that it is funded in this manner, is a non business activity for VAT purposes.
NUH and the University/ Partners are the joint applicants of these funding, albeit the funding is received and distributed by NUH. Payments (e.g. salaries paid by NUH to University staff) from NUH to the University would therefore be a distribution of the grant to the University, there is no supply between the parties and their activities are outside the scope of VAT.
Commissioned research
Subject to the intentions of NUH and the way the contractual arrangements are structured between it and the University/ Partners, the activity of carrying out research can be a business activity for VAT purposes. This would arise in two circumstances:
- If NUH contracted with the University or the University to supply research services; and, or
- NUH had a firm and primary objective of generating commercial income from intellectual property generated from the research.
Under both scenarios the University and NUH are carrying out business activities for VAT purposes.
If NUH commissions/contracts with the University for the University to provide research, the supply by the University will be exempt for VAT purposes on the basis that the supply is between two “eligible” bodies (VATA 1994, sch9 grp 6, item 1(b)). This assumes the University’s activities are closely related with their activities of providing education.
Where research services are received from overseas Universities (and there is a supply for VAT purposes), NUH should account for VAT on the services under the reverse charge mechanism. HMRC do now recognise overseas Universities as having eligible body status for VAT purposes and therefore there should not be VAT cost on these services.
Instead of carrying out exempt research for NUH, the University could also supply staff (secondment) to the Trust to carry out research under the control and direction of the Trust. Payments from NUH to the University would therefore be the consideration for the supply of staff, which would normally be standard rated. However, under the terms of the Memorandum of Understanding – Joint Staff of Universities and NHS Organisations (March 2007), if staff are jointly employed by the Trust and the University to be engaged in both teaching and/or research as well as the delivery of patient care, such arrangements are outside the scope of VAT.
