NHS organisations should also be aware that the VAT exemption for business supplies of research to other ‘eligible bodies’ (such as universities and charities) will be withdrawn from 1st August 2013.

The decision follows a notification from the European Commission that the exemption does not comply with European law. Currently, business supplies of research between two eligible bodies are exempt from VAT (e.g. research work which is sub-contracted by one eligible body to another), but under the new rules these supplies will become standard-rated for VAT purposes.

The withdrawal of the concession will not affect non-business research, which is defined as research in the public good that is either block-funded (e.g. from a central government grant) or funded by a grant from a body which does not receive goods or services in return (e.g. a research council). This research will remain outside the scope of VAT.

Most supplies of research made by NHS organisations are likely to be grant-funded, and so will not be affected by these changes. However, we await further guidance from HMRC about how these changes will be implemented, such as whether the new rules will apply to research projects in progress on 1st August. It will be worthwhile for NHS Trusts, when reviewing the details of ongoing and future research projects, to determine whether the VAT treatment will change.