Understanding the impact of VAT on a non-research project can be crucially important in determining whether that project is financially viable. Failure to identify VAT liabilities at the budgeting stage can lead to difficult problems later.
Knowing whether VAT is deductible from your income and whether it will be an additional cost can make or break the finances of a project. At the budgeting stage, it is very important to ensure, as far as possible, that you have considered and answered these two key questions.
Will the income for the project be subject to VAT?
If so, then you need to appreciate whether the budgeted income includes the VAT which will have to be paid over to HM Revenue and Customs (HMRC).
For example, if the income for the project is budgeted as £1,000 and this is VATable income (eg a concert attended by 100 members of the public paying £10 per head) then, after the deduction of the VAT (£1,000 x 1/6 = £166.66) the actual income received will be only £833.34.
Will any VAT on costs be reclaimable?
If so, then you will only need to budget for the ‘net’ cost on those particular expenses.
Taking the example above, if the only costs are the hire of an external venue for £500 plus VAT and some internal catering from Accommodation and Campus Services at £300 (no VAT as internal trade), then the VAT on the external costs would be reclaimable and the total actual cost to be included in your budget will simply be £800.
Need help or more information?
Who to contact
If you are in any doubt about whether income will be subject to VAT then contact the Tax section for advice and guidance.
For guidance on handling your income, setting up new project accounts and raising Sales Invoices contact the Finance Manager for your Academic Department or Professional Services Department.