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VAT on research funding

There are different types of VAT treatment for income received for research grants:

  • standard rated
  • zero rated
  • exempt (no longer an option on new grants since 01/08/13)
  • outside the scope
  • EZS (zero rated but flags that the sponsor is from the EC)

The VAT treatment is assigned depending on the nature of the research contract and the status of the sponsor, for more details see the flowchart for VAT rate selection for grant set up.

The VAT rate applied to an award can be viewed in the Award Status screen or on the header of the Award Status report. The last two letters of the GL source of funds mapping code for a research grant indicate the sponsor type and the VAT treatment.

 

Standard rated 20%

Standard rated grants do have VAT charged on claims to the sponsor. As these are taxable supplies any VAT on wholly related purchases is recoverable from HM Revenue & Customs (HMRC).

The last letter of the source of funds mapping code will be A, which will automatically trigger the VAT reclaim from HMRC, leaving only the net value as a cost to the grant. UK commercial sponsors are normally classed as standard 20%.

 

Zero rated and EZS

For zero rated and EZS grants, any VAT charged on related purchases is also recoverable from HMRC. This is because zero-rating is a type of taxable supply, and it follows that VAT on wholly related purchases is recoverable.
 
The last letter of the source of funds mapping code will be A, which will automatically trigger the VAT reclaim from HMRC, leaving only the net value as a cost to the grant. Typical examples of sponsors whose grants are normally zero rated are commercial organisations outside the UK.

EC FP7 grants

For EC Framework 7, although the income is classed as zero-rated VAT on purchases cannot be reclaimed from HMRC and is an additional cost to the department. Any VAT on transactions will be transferred to the department by the Tax Office within the Finance Division as an additional cost of undertaking the research. The last letter of the source of funds mapping code is C.

Since all taxes on EC FP7 grants are ineligible costs then any foreign taxes (eg. foreign VAT, sales tax, exercise duty) included in expense claims relating to an EC FP7 grant must be separated when processing in UFS. Code the taxes to somewhere other than the grant (eg. from the department’s share of overheads) and apply no ‘UK VAT’ to all lines.

See the ROO website for more information on FP7 Grants

 

Exempt (only applicable for grants set up prior to 01/08/13)

Exempt grants are not liable to VAT when we make a claim to the sponsor therefore; we are not able to reclaim the VAT on any related purchases. Thus any VAT incurred is coded as an additional expense to the grant.The last letter of the source of funds mapping code will be B. Grants received from other Universities, Health Authorities and Government Bodies are typical examples where exemption was an option in the past.

 

Outside the scope

Outside the scope grants are not liable to VAT so when claims are made to the sponsor we are not able to reclaim the VAT on purchases. Any VAT paid will be coded to the grant as an additional cost. The last letter of the source of funds mapping code will be B. Typical examples of grants classed as outside the scope are those from Research Councils, charities and the European Commission (except EC FP7 – see above).

NIH grants

Any taxes on NIH grants are treated as an ineligible cost, consequently any taxes (eg. UK VAT, foreign VAT, sales tax, excise duty) included in purchases/expenses which relate to an NIH grant must be separated when processing in UFS. Code the taxes to somewhere other than the grant (eg. from the department’s share of overheads and apply ‘No UK VAT’ to all the lines.

 


Self-charging charging VAT

If you purchase goods or services from outside the UK the university may be subject to additional VAT. These additional costs are Acquisition VAT on goods from EC countries or reverse-charge VAT on services from outside the UK.

Please see Chapter 9 ‘Vat & Other Taxes’ for more details of purchasing goods from the EC and services from outside the UK.

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