1. Research Funding
X5 Tax Code
Decision Tool

2. How to use the tool (1)
The first step is to determine whether the research is “business” (commercial) i.e. there is a supply/benefit to the funder or “non-business” i.e. grant funding with no benefit to the funder
The next two sections set out the main indicators for each scenario which should be ticked if present
The more indicators there are from each section, the greater the evidence for a decision
You must consider the “economic reality” not just the contractual terms (i.e. if the contract does not reflect what’s actually happening…). See the guidance note

3. How to use the tool (2)
Once you have decided whether the research is business (commercial) or non-business (non-commercial), use the flowchart to arrive at the correct X5 Tax Code
The same indicators can be used to establish collaboration or third party sub-contract (see the guidance notes)
Save the completed tool to evidence your decision
If in doubt please contact the Tax department!

4. “Business” indicators (‘supply’)
(if the answers to Q1 and Q2 are ‘yes’ then the contract is business and ignore Qs 3-7) 1
Is the funder a business or commercial entity? 2
Does the funder exclusively own some/all of the arising IP/results? 3
Is the University obliged to provide specific services? 4
Is payment on a fixed price basis (i.e. the University
is allowed to keep any unspent/unallocated funds)? 5
Has the funder commissioned the research (e.g. via a tender process)? 6
Is there an explicit option for the funder to take an exclusive and/or commercial licence of IP/results? 7
Is there a veto on publication or a restriction beyond three months?

5. “Non-Business” indicators (‘grant’)1
Is the funder in the public/not-for profit sector? 2
Does the University own the arising IP/results? 3
Is main aim of the research to benefit society as a whole)? 4
Is the funding drawn down on a costs-incurred basis (i.e. to cover expenditure)? 5
Has the University applied for the funding e.g. following an open call? 6
Will the funder require a financial audit report? 7
Does the University have unrestricted publication rights or is any restriction under 3 months?

6. Using this tool for Collaboration
HMRC accept that all research services provided by collaborating bodies are outside the scope of VAT if they are part of the original grant application or added later – this should be evidenced in writing
Please see the guidance for assistance or contact the tax department directly
The tax department will provide advice within 3 working days of full information being provided

7. Flowchart Non-Business Business Yes
Will the funder fund irrecoverable VAT costs?
X5 Tax code A
Is the funder an Article 151 Body?
Yes
X5 Tax code B
Outside of scope non-business /
Funded irrecoverable VAT
VAT Zero Rate /
Full Recovery No No
Is the funder based in the UK?
Yes
X5 Tax code E
X5 Tax code C
Outside of scope non-business /
Non-funded Irrecoverable VAT
VAT Standard /
Full Recovery No
X5 Tax code D
Outside of scope Recovery /
Full Recovery

8. The purpose of this decision tool is to assist Research Services to assign projects to the correct tax code on X5
X5 AR Tax Code
R12 AR Tax Rate (Tax Classification Code)
Corresponding R12 AP Tax Recovery Rate (Tax Recovery Type)
Explanation A
OUTSIDE OF SCOPE NON BUSINESS
IRRECOVERABLE VAT
Grant where no benefit to the funder and the VAT cost has been budgeted in the project B
VAT ZERO
FULL RECOVERY
Article 151 body funding where a supply is being made back to the funder. C
VAT STANDARD
A supply is delivered back to the Funder. D
OUTSIDE OF SCOPE with RECOVERY
The funder is overseas and a supply is delivered back to the funder. E
NON-FUNDED IRRECOVERABLE
Where the funder contractually will not fund the irrecoverable VAT, it is a cost to the dept.