As discussed in our July 2013 newsletter, the VAT exemption for business supplies of research between NHS organisations and other ‘eligible bodies’ (such as universities and charities) is withdrawn with effect from 1st August 2013.
HMRC has now published detailed guidance about this withdrawal, which states that the VAT exemption is no longer available for written contracts that were not entered in to by 1 August 2013.
Transitional arrangements are available for written contracts that were entered in to before this date (regardless of whether or not the work had started). These allow business supplies of research to continue being exempt from VAT for the life of the contract, provided that the services performed are within the scope of the contract as it stood before 1 August 2013.
If a contract is extended or varied on or after 1 August (whether or not the consideration payable is increased), then payments for new or changed supplies will be standard-rated for VAT. Minor variations (such as changes to delivery times or the supplier of a sub-contracted service) will not affect the VAT treatment of the original contract.
For research to be subject to VAT, HMRC advises that it must be supplied by way of business and under a contract or other agreement, in return for consideration, i.e. there must be a direct link between the research supplied and the payment received. Research is not subject to VAT when it is funded, either by the public sector or by the charitable sector, for the wider public benefit, although each research project should be considered on its own merits.
NHS bodies that are making, or preparing to make, business supplies of research should therefore consider the VAT treatment of this research. If you would like further information about how these changes might affect your organisation, or need advice about the VAT implications for a research project, please do not hesitate to contact us.