EU to force UK to charge VAT on funded research

Sun 23rd Dec 2012

The European Union has requested the UK to impose VAT on funded research to comply with the EU VAT Directive.

Currently, the UK tax authorities, HMRC,  treat funded research as exempt from UK VAT.  This means that companies providing research services charge no UK VAT on their invoices – although they cannot reclaim any input VAT on goods or services they buy in.

The EU, which oversees the European VAT regime, has now assessed this as in contravention of the European VAT laws (EU VAT Directive).  HMRC will now consult with industry players to gauge the impact on this change to see what steps could be taken to reduce any negative effects.  It has agreed with the EU to change the VAT policy on 1 April 2013.

The ruling from Europe follows a similar request from the EU for the UK to re-rate energy-saving goods from the reduced VAT rate of 5% to the UK standard rate of 20%.