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Medical research charities and VAT

Last reviewed 
7 August 2013

Funders do not pay VAT on research

Medical research charities do not expect to see VAT included in the costs of the grants they award, because research that is intended to advance knowledge and understanding is classed at  'out of scope' for VAT by the HMRC.  

Before August 2013, HMRC also allowed research that was not intended to advance public knowledge to be 'exempt' of VAT, where the contract was between eligble bodies, such as universities or charities. HMRC removed this exemption in August 2013, and have produced an information sheet explaining the changes.

During the transition period, many research organisations have assumed incorrectly that all research funded by charities will be eligble for VAT. 

What the changes to VAT exemption mean

In summary:

  • Most research is still out of scope for VAT.

  • Collaborative research, carried out by more than one university or research institution that is not a business, will be out of scope of VAT.

  • VAT arrangements for  contracts signed before 31 July 2013, for 'business' research will continue. If it was 0% VAT it will continue to be 0%

  • VAT on contracts for business research signed after 31 July 2013 will be 20%.

What this means for charities

  • VAT should not be added to any invoices for research grants, unless it was laid out in the grant application as a service being paid for, eg business supply.

  • VAT cannot be added to existing contracts where it was not previously incurred.

  • Charities need to be sure that when they are awarding grants they can know who the collaborating institutions are.

For grants where collaborators are identified after the grant is awarded  (ie some clinical studies), charities will need to have evidence of the collaboration. This is most likely to apply to clinical trials when new investigators are added to the trial, and can be demonstrated by the trial sponsor’s documentation.

Background to these changes

In December 2012, HMRC consulted on plans to withdraw the exemption for business supplies of research between eligible bodies, as the exemption did not comply with European legislation.  The consultation assumed that projects that involved research funds being passed between universities were not 'true' research and so would be eligible for VAT. During the consultation period, we worked with HMRC to develop its understanding of the nature of collaborative research, and the issues faced by charities. HMRC has produced a briefing, an information sheet, and the consultation report is also available.