A scheme aimed at minimising the costs incurred by universities sharing research equipment would be too risky and expensive to implement, according to a new report.
Sharing university equipment is common among academic institutions, but VAT charges on sharing assets are a significant barrier. In many cases, this charge cancels out financial efficiency reasons for sharing.
In a bid to overcome this problem, the N8 Research Partnership – a collaboration between the universities of Durham, Newcastle, Leeds, Manchester, Liverpool, York, Sheffield and Lancaster – undertook a project funded by the Higher Education Funding Council for England to explore sharing costs through tax exemption measures.
A report on the project concluded, however, that the benefits of the proposal “are not seen to outweigh the risks and costs”.
N8 aimed to create a framework that would allow universities sharing equipment to meet the terms of the VAT cost-sharing exemption (CSE), a measure that allows groups to be exempt from VAT on supplies made to their members if certain conditions are satisfied.
Each university was required to set up a company – a cost-sharing group (CSG) – and to have membership to each of the other institutions’ CSGs. When a particular university wanted to borrow equipment, it would “purchase use” from the relevant CSG.
However, because of a ruling by Revenue & Customs (HMRC) that states that a CSG cannot exist within a university’s VAT group, any CSG formed would have to be outside the group and therefore would incur a separate VAT charge. Thus, the CSG model proposed by N8 would be negated as the VAT charge would move to elsewhere in the supply chain.
The report found that while the CSG model remains “theoretically sound”, it risked “infraction with HMRC and tribunal proceedings”. It also noted that universities are “averse to implementing new tax structures…not thoroughly tested and accepted by HMRC”, while there were concerns that financial benefits from using a CSG would “not be significant” compared with the costs of establishing and running a separate company.
Peter Simpson, director of N8, called on the government to work with the sector to ensure “optimised use of high-cost equipment that in many cases is taxpayer-funded”.
“We recommend that government works with HMRC and [higher education institution]-representative organisations to identify an acceptable process for which the sharing of equipment can avoid financial penalties,” he said.