There are several considerations that must be addressed before any new type of external sales are undertaken or a significant increase in scale of activity occurs. The new activity form must be completed and forwarded to the Accounts Receivable helpdesk. The form requires details of the proposed income generating activity, and institutions must have answered the questions below. The University’s charitable status must be protected and the institution’s evaluation of the price to be charged presented.
Should the University be making this sale?
Before deciding to supply any new type of goods or services to external customers, you must first complete the new activity questionnaire (available from the Finance Divisions forms website), and forward to the Accounts Receivable helpdesk for sign off by the Head of Accounting Services. You will need to provide details of the new activity, including responses to these questions:
- How does the activity relate to the University’s core business, that is, the pursuit of education, learning and research at the highest international levels of excellence?
- Is it appropriate for the University to be involved in such activity?
- Does the activity conform to guidelines set in the Financial Regulations and to all relevant conditions already in existence within the University’s approval framework?
- Does the activity bring the University into disrepute or disgrace by association?
- Does the activity expose the University to unacceptable risks (e.g., financial, legal, health and safety) and is it covered by the University Insurance policy?
- Would the activity put the University’s charitable status at risk?
- Has the proposed customer been screened according to the University Sanctions policy?
- Has the activity been realistically assessed in terms of the likely levels of income versus the costs?
- Have the University’s standard terms and conditions been successfully incorporated into the sale?
- Are the price, delivery requirements and any other conditions particular to this sale acceptable to both the customer and the University?
- Has the Tax Team been consulted?
Further guidance about some of these aspects is provided in the following sections on this page:
- Charitable status
- Establishing the right price to charge (full economic costing)
- Non-university commercial activity
- Marketing and advertising
Charitable Status
No income generating activity should put the University’s charitable status at risk. Institutions must consider whether any new income-raising venture falls within the University’s core charitable activity. Broadly speaking, charitable activity in the University context equates to the provision of education and supporting services, and the pursuit of research where the results of that research will be fed into the public domain. It is important to remember that the test is applied to the activity itself and not its intended result.
| For example, an institution may decide to raise funds for its educational activity by selling t-shirts. Although the result of the activity is that education is improved by the profit made, the activity itself, selling t-shirts, is not a charitable activity. |
The University may only engage in non-charitable activity to a very limited degree. If the University engages in significant trading activity which is not charitable, that activity may be liable to tax at 30% of profits. Ultimately, extensive non-charitable activity may threaten the charitable status of the University. For this reason, as per the financial regulations, institutions must consult with the Tax Team prior to commencement of a new income-generating activity.
If an institution wishes to embark upon a non-charitable trading activity, Cambridge Enterprise Limited must be contacted.
Establishing the Right Price to Charge (Full Economic Costing)
The University is required by the Office for Students to assess the full cost to the University when determining the price to be charged for research contracts, residences, catering, conferences, and services to external customers.
Heads of Institutions are responsible for ensuring charges allow for all relevant costs and that they are aware of the extent, if any, to which institution resources have subsidised the sale. If applicable, justification of the subsidy may be required for audit purposes.
Costs to be considered
When costing an activity, it is important to consider all the costs associated with producing the final output.
Direct costs: Some direct costs such as materials and staff employed specifically to work on the activity will be apparent and easy to calculate. However, some direct costs may be hidden or incurred later. All the costs incurred by the process need to be included, for example:
- packing and shipping
- insurance
- advertising
- related payment charges which may be incurred later by the institution or centrally, such as credit card processing charges, BACS, exchange rate gains/losses
Indirect costs: are hidden costs and include resources that the institution already pays for. These must be agreed in advance as part of the contract or customer purchase order. Disputes about this type of cost are more likely, and recovery of debts can prove difficult when an agreement has not been made in advance. To fully cost an activity it is necessary to calculate what percentage of these resources are used by the activity and include the relevant amount in the costing calculation. For example:
- core staff costs – time spent on administration and sale, raising of invoice and receipting payment
- incidental use of other institution facilities and services
- space costs, such as lighting and heating
Further guidance and advice is available from Finance Business Partners or institution heads of finance, and from the Research Operations Office (ROO).
Establish Cost vs Price
In addition to establishing the full economic cost of an activity, institutions must consider the price which can be charged, bearing in mind the effect on the University’s charitable status.
For example, the cost of creating an item for sale might be £100, but the highest price that the market will pay is £80. In this case there is little reason to continue with the activity unless it is in furtherance of our charitable aims. Alternatively, an item may cost £100 to produce, but the market will bear a price of £500. However, this does not mean that the highest price obtainable should always be the price charged. If the price makes the activity inaccessible to all but the wealthiest, then it may not be regarded as charitable.
Sales to employees and members of the University
Sales to employees and members of the University must be at a rate that covers the full cost to the University. If, exceptionally, this is not the case, the Head of Institution must approve the transaction in writing. Any sales made at undervalue (including where no charge is made) to employees or their families must be recorded and reported as a taxable benefit at the end of the tax year.
Non-University commercial activity
Staff must not represent themselves as an agent of the University when undertaking personal consultancy work. University-headed document templates, the logo and the University’s Financial system (UFS) must not be used for charging customers for non-University commercial activities. The University’s bank account must not be used to recover payments relating to such activities.
Non-University commercial activities should not be carried out on University premises and facilities.2
Exceptions
There are two exceptions:
- where the activity is incidental in scale; or
- the activity has been authorised by written permission of the Head of Institution and a commercial agreement is put in place for the reimbursement of costs incurred
In all cases the Director of Finance must be consulted. The Director of Estates must be consulted in respect of granting leases or licences for the use of University facilities. Credit should not be given in these circumstances.
Cambridge Enterprise Limited
Cambridge Enterprise can assist staff members who carry out non-University commercial activity, in particular the exploitation of intellectual property through licensing agreements and the establishment of spin-out companies. It provides a means of patenting intellectual property, negotiating agreements, invoicing customers, and determining correct VAT treatment. An administration fee is charged for the service, or revenue is shared in accordance with the Intellectual Property Ordinance where applicable. For further information and contact details, refer to the Cambridge Enterprise webpage.
Cambridge University Technical Services Limited (CUTS)
CUTS is a subsidiary of Cambridge Enterprise Limited which can assist staff members who wish to undertake consultancy work. It provides a means of invoicing customers and determining correct VAT treatment, as well as bringing the consultancy work within the cover provided by the University’s insurance policies. An administration fee is charged for the service. For further information and contact details, refer to the Cambridge Enterprise webpage: Meet our Consultancy Services team – Cambridge Enterprise
Marketing and advertising
Chosen methods of marketing goods and services for sale must not result in negative attention for the University or affect its corporate branding and reputation.
Institution websites must adhere to the University branding standards. Refer to Office of Communications.
Advertising which includes a customer’s company logo may constitute a supply of service which would need to be charged as a taxable supply
2Financial Regulations 2012, Commercial Activity, section 28.1
1Financial Regulations 2012, Income and Expenditure, section 12.1
Latest version 16 April 2024