VAT on Govt Development Contract

[ConfusedScientist]

Hi All,

Got a query regarding paying VAT on a govt contract... It's all getting a bit confusing for us.

So we got awarded a government research contract to complete a scientific research project towards a medical device product. Much of the work is outsourced to a university in Europe, as they have the skills and experience to do a key part of the project. The advice we received was to send invoices in to the administrators of the money, allowing for VAT on the VATable items...

With the subcontracted work not attracting VAT, that indicates that we submit an invoice which contains two parts... A VAT element for our side of things, inc buying materials etc and a non-VAT element for the subcontracted work.

Does that sound right? It seems odd if we have to pay VAT on work which doesn't attract VAT!

Thanks, CS.

[pawncob]

Why doesn't the S/C work attract VAT?
In any event bill the Gov Dept for the full amount and add VAT to it all. You pay the O/P tax and the Gov Dept doesn't have to worry about a reclaim.

[ConfusedScientist]

Some of the sub contracted work is to a european uni and - as we understand it - is VAT exempt in a similar way to hospitals being VAT exempt in the UK.

Some of the other work is subbed to a small limited company that's not VAT registered.

One of our directors has been through the process before (couple of years ago) and they only charged VAT to the govt agency on the stuff they recharged that they paid VAT on. Does that mean they have to go back and pay VAT on the full amount of the grant/contract?

Thanks for your advice... The govt agency haven't been able to tell us anything, as they don't seem to have anyone that knows the score!

[pawncob]

If you can determine the zero/exempt value, you can apportion the VAT to charge, but it's safer to charge on the whole amount.

[ConfusedScientist]

Ah, so VAT isn't added to subcontracted stuff that is VAT exempt?

[pawncob]

Yes, VAT is only charged on S.R. items.