North Americans are no strangers to the 2008 financial crisis and the austerity measures reverberating through government budgets since that time.
Over at opinionomics, a discussion has started on a proposed tax on UK sequencing services:
All of the UK academic sequencing facilities are in the same boat, and the consensus opinion appears to be that, after August 1st, we will need to start charging VAT (a 20% consumption tax) on sequencing for academic researchers outside of our own universities. The VAT of course goes straight back to the treasury.This opinion stems from a short document very obviously entitled "VAT: Withdrawal of the exemption for business supplies of research between eligible bodies". Here's the example cited:
A charity grant funds University A to carry out some research. The supply University A makes to the charity is outside the scope of VAT. However, University A needs to subcontract part of the research to University B. At present, the supply University B makes to University A is exempt from VAT but after the exemption is withdrawn it will be taxable (20% VAT).Sounds bad, doesn't it? It's actually rather convoluted. Read on.
The actual impact of the 'sequencing tax' will only affect transactions between universities, so while the example given by opinionomics is correct; academic sequencing facilities will start charging tax on contracts outside of their own institutions, some exemptions are unchanged. For instance, the UK consulation paper outlines the following relationships:
The withdrawal of the exemption for research supplied between eligible bodies will not affect the VAT treatment of research that is currently outside the scope of VAT (non-business research) or research that is standard-rated (business research).So though it sounds like most not-for-profit grant funded research isn't affected by the VAT, that's actually not the case, according to @BioMickWatson. He pointed out an even stranger situation created by two universities collaborating on a sequencing project: If grant funds flow to a university sequencing facility through another university, VAT is charged, but if the money is paid directly to the facility, it isn't.
In Ontario, universities reclaim a large part of the HST they pay, dropping the net effect of tax from 13% to about 3.4%, according to the University of Western Ontario. It seems that this doesn't happen in the UK.
And finally, in the case of UK sequencing facilities having to charge the tax, here's the most important paragraph to consider, which describes University B providing services for University A:
University A’s costs increase by the VAT charged by University B. However, since University B can now deduct input tax on making this supply, this may allow, in some cases, for a lower net price to be charged to University A.So if the new sequencing VAT is anything like the HST for businesses in Canada, whatever has been paid on inputs used by the sequencing facilities should now be written off.
Here's how it works in Ontario: If a business purchases inputs costing $1,000 they pay $130 in consuption tax for a total of $1,130. If they can't deduct input taxes, they will need to charge their clients at least $1,130 to break even.
But if they can deduct the tax, they need to charge their clients at least $1,000 + 13% HST, or a total of $1,130. The $130 tax paid on their inputs is deducted from the $130 they collect from clients, leaving nothing to send to the tax man, as they've already paid their suppliers the HST on their inputs.
The net effect to the client will be zero, except for some additional paperwork, a small impact if you're in Canada.
In the UK, however, it seems the tax system is changing to one that treats research as a business without taking into account that in most academic cases, it's actually more like a charity or a public good.