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HMRC internal manual

VAT Supply and Consideration

HM Revenue & Customs
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Consideration: Payments that are not Consideration: Grants: Framework 7

The EU Framework Programme is the regime used by the European Commission to fund research and development within member-states. Researchers bid for funds for their projects and typically receive funding for 50% to 70% of the project.

Following clarification from the EU Commission, funds received by researchers under EU Framework Programme 7 are confirmed to be grants.

Grant in aid paid to fund research does not constitute consideration for any supplies by the person receiving the funding to the person paying it. In these circumstances, research that is wholly grant funded is not a business activity for VAT purposes and is not within the scope of VAT. Any VAT incurred in the course of such funded research is not deductible.

UK research bodies cannot deduct as input tax VAT relating to purchases incurred in the course of research that is wholly funded under Framework 7.

Although it is now apparent that funding received under Frameworks 5 and 6 should also have been treated as non-deductible grants, HMRC accept that the advice that was current at the time did not reflect this.

VAT incurred on goods and services purchased purely to support research funded under Frameworks 5 and 6 is not input tax and thus it should not have been recovered. To the extent that research bodies wrongly recovered this VAT following advice from HMRC that they were making supplies of services under these Frameworks, HMRC will not be taking any action to correct this.