Research Income - VAT treatment

Research that is outside the scope of VAT

Generally, research is outside the scope of VAT when it is funded by the public sector or charitable sector for the wider public benefit.  However, this is only a general rule of thumb and each case should be considered on its own merits.

You should consider whether the work is commissioned by the funder in which case it can fall within scope of VAT.

The main question is whether the funding is part of the consideration for any specific supply:  does the funder receive any benefit or deliverables for the consideration that is paid? If not, then the research is likely to be outside the scope of VAT.

Research that is within the scope of VAT

Business research is within the scope of VAT including research between eligible bodies.

For a supply to come within the scope of VAT there have to be at least two parties and a written agreement between them under which something is done for a consideration and by way of business. This means that there must be a direct link between the service supplied (in this case research) and the consideration received such that the relationship can be established between the level of benefits the customer gets and the amount they pay.

Consequently, where research is supplied by way of business in return for payment, this will be within the scope of VAT and will be taxed at the standard rate if the customer is based in the UK.

Business research - overseas customers

The general rule for services provided to an overseas business customer is that VAT is due where the customer belongs.

This rule also applies to research so we don’t generally charge VAT to business research customers who are based overseas.


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