Research is defined for VAT purposes as "an original investigation undertaken in order to gain knowledge and understanding".
An investigation that is no more than the gathering of data or the collation of existing knowledge is not regarded as research for VAT purposes. There must be an element of analysis and original thought that is applied to data or information after it has been obtained for the investigation to count as research.
Prior to 1 August 2013
A supply of 'business' research between eligible bodies was exempt from VAT and 'non business' research was outside the scope of VAT.
Eligible bodies include schools, UK universities or a college of a university, an institution falling within the Further and Higher Education Acts, a public body such as a government department or local authority, health authorities or a non-profit making body such as a charity.
The VAT exemption for business research supplied between eligible bodies was withdrawn for all written contracts that were not entered into by 1 August 2013.
The withdrawal of the VAT exemption does not mean that UCL charges VAT on research funded by the Research Councils or Charities as in most cases, UCL is not making a supply for consideration but is instead receiving grants for which nothing is given in return. These grants remain outside the scope of VAT.
Where there is a collaborative arrangement between different research institutions where all parties to the grant are named on the application or where the funding flows through one named party where they act as a conduit in passing the funds to others involved in the project the funding is outside the scope of VAT.
Where research is supplied by way of business and in return for consideration this is taxed at the standard rate of 20%.