Supply of Services

The supply of services is a taxable supply.  For business to business supplies (B2B) a service is taxed in the country in which the customer is based.

Where the University sells a service to an overseas customer then the supply is outwith the scope of UK VAT by virtue of the customer’s location.  Conversely, when the University buys services from overseas it needs to self-apply so-called “reverse charge tax” to the supply.

Situations where research related activities may be standard rated

There is an exemption for “research services” which enables grant funded income to be received by the University outwith the scope of VAT.  HMRC define certain research related activities that do not fall under the exemption and therefore would be considered a taxable supply of services.

These include:-

• Merely confirming existing knowledge or understanding
• Consultancy
• Business efficiency advice
• Collecting and recording statistics without also collating, analysing, or interpreting them
• Market research
• Opinion polling
• Writing computer programs
• Routine testing and analysis of materials, components and processes

Where funding is provided to a named party for research that will either generate IP to be exploited by the funder and/or is not for the public good this would be a taxable supply.  If they subsequently decide to sub-contract some of the research to an eligible body (for example, a university), this will be a taxable consideration for supply

Direct and immediate link

For there to be a supply of services for VAT purposes, there must be a direct and immediate link between the consideration paid and a service provided.

Where a subsidy is granted by the donor to the recipient to enable a third party to obtain a specific service (or to obtain it more cheaply) this would, as a general rule, be a taxable service.

The main question to answer is whether the funding is the consideration or part of the consideration for any specific supply.  If not, then it is outside the scope of VAT.