The government has announced that it will withdraw the VAT exemption for supplies of business research following a three-month consultation period as the rules do not comply with EU legislation.

HMRC has published a summary of responses to the consultation on the withdrawal of the VAT exemption for research held between 20 December 2012 and 14 March 2013.

According to HMRC, the respondents recognise that the government has no option other than to withdraw the exemption for supplies of business research between eligible bodies as it does not comply with European legislation.

HMRC estimates that the withdrawal of this exemption will lead to increased VAT on these supplies of approximately £10m in 2013-14, increasing to a maximum of £50m by 2017-2018 as more contracts become taxable rather than exempt.

Following the consultation, the government has decided that the supply of research services for business purposes between eligible bodies will, for contracts entered into on or after 1 August 2013, be taxable at the standard rate (20%); and for written contracts entered into before 1 August 2013, continue to be exempt from VAT.

HMRC has published VAT Information Sheet 11/13 setting out the implications and VAT treatment of transitional arrangements.

More details are available HERE