Universities could be forced to pay tax on the profit they make from research collaborations with businesses under proposals from government tax officials.
Universities are charities and are exempt from paying tax under charity law as long as activities are within their "primary purpose", which from the point of view of HM Revenue and Customs is to conduct teaching and blue-skies research.
HMRC is understood to be looking at the extent to which university research with business could infringe this charitable status. If such research is deemed to be outside the "primary purpose" of the university, then profits the institution makes in such a context could be subject to corporation tax of 28 per cent.
The move has raised the hackles of business leaders, who say any moves by HMRC to collect tax from universities from the fruits of collaborative research would be at odds with the emphasis the Government has placed on encouraging so-called third-stream activities.
"It undermines the ethos of universities' third-stream activities at a time when the Government wants more collaborative research," Tim Bradshaw, head of innovation, science and technology at the Confederation of British Industry, told the Times Higher Education. "Third-steam activities are a primary purpose of universities."
It could also mean cutbacks in collaborative research if tax costs were passed on by universities, he warned. "Costs could get passed on to users, be they government departments, charities or businesses. We are concerned about the implication this has for the relationship between business and universities," Dr Bradshaw said.
Industry's opposition to a tax on third-stream activities was echoed by Philip Harding, chairman of the British Universities Finance Directors Group. "As a matter of principle, universities should not be paying any tax and certainly not on contract research that we would regard as a primary purpose ... It is utilising the knowledge and expertise within universities (and) benefiting the economy."
Dr Bradshaw said the CBI would meet with HMRC, the Treasury, the Charity Commissioners in England and Scotland and the Department for Innovation, Universities and Skills to try to resolve the issue, but warned that it could become a major problem if HMRC did not back down. "We want to make sure it doesn't become an issue," he told Times Higher Education.
HMRC said in a statement to Times Higher Education that the Government's long-standing policy with regard to public bodies - including universities - has been to ensure a "level tax playing field" and that where public bodies were carrying out commercial activities in competition with the private sector, "those activities should be taxed in the normal way".
"Whether a particular activity ... is taxable is a question dependent on the facts of the individual scenario ... The rate at which profit is taxed is equally dependent on the facts of the case and the level of profit ... The line between primary purpose and non-primary purpose trading is sometimes difficult to establish and HMRC has been working hard with interested parties to ... make sure that the tax position is clear. Doing so should give universities greater certainty, which should be helpful for both them and businesses."