As the financial squeeze across the HE sector continues, universities have been encouraged to take “bold and transformative action”.
There have been plenty of suggestions about what those transformative projects might look like, as collated recently in sector publications such as UUK’s blueprint for change, and the Jisc/KPMG report on digital collaboration.
While the sector mulls over these options, sector colleagues may be painfully reminded of transformation projects, some more infamous than others, that have gone wrong.
Learning from failure
Failed projects (whether un- or under-delivered, or significantly overdue or overbudget), can be found in any sector, yet higher education is fairly unique in that the sheer breadth of activities undertaken in the UK and overseas, and the complex public/autonomous/charity/commercial mix in the nature of those activities, creates significant additional risks and challenges for projects that other, more narrowly-defined sectors don’t have to navigate.
One, often overlooked, aspect of projects in university land is tax.
Despite its unglamorous image, considering the tax implications of any potential idea at the very first stages of ideation can vastly improve the chance of project success. Many universities have expert tax professionals in their finance teams who are keen to help and add real value. Contrary to popular belief they do not aim to be blockers, but rather to help colleagues find the best way to structure the bold new ideas and minimise pain that may otherwise result. Working with your FD or CFO to consult with them before pressing ahead with a project can help avoid unnecessary costs and improve the accuracy of financial projections.
The wild world of taxation
For starters, commercial activity undertaken by universities in the UK does have tax implications. Tax potentially due should be costed when any new commercial activity (or amendments to an existing relationship to commercialise it) are undertaken, not least to ensure viability. Research partnerships with commercial organisations can be quite complicated and lead to a number of tax and compliance issues, so tax advice should be sought at the planning stage. Add in any international element where people are working overseas, and the costs can be particularly significant, even if there are relatively few individuals involved.
Another area where projects can stumble is in the use of external suppliers. If there is limited staffing resource and a desire not to increase headcount, projects may use contractors or freelancers to help complete the work. There are strict requirements of all organisations when taking someone on outside of the payroll. If the individual is acting in an employed capacity, but you have treated them as self-employed, the costs and reputational impact can be significant. Involving your tax team early will alleviate these risks.
If a project involves acquiring or developing property, or changing the use of properties that are less than 10 years old, then there could be a significant VAT bill on the way. This might be where charitable research facilities switch to academic teaching or commercial activities, which was the situation in a recent case where a potential VAT charge amounted to several million pounds.
With new online learning, colleagues should be aware that an increasing number of countries now tax this where it is consumed (i.e. where an overseas student accesses the education outside the UK). UK universities may have to register for VAT/GST in an overseas country and submit tax returns. Some countries also collect tax on profits. The costs of in-country taxes, upfront professional advice and ongoing compliance costs should be built into a business plan to ensure that the project is actually viable.
Finally (but not exhaustively), the world of medical taxation is especially rich and colourful. If your project involves any kind of significant medical purchases or setting up new facilities or services, then please talk to your tax specialists. The rules around VAT reliefs are complicated and cannot be applied to all purchases for medical/veterinary, but it’s also difficult sometimes to get any overpaid VAT credited, meaning it’s key to get it right up front. The answer might not always be a positive one – we may incur VAT and it will be a cost – but at least you can budget on this basis.
Tax and legal
And while you’re waiting for your tax team to get back to you, it’s probably worth double-checking that the legal team have been consulted too. The two often go hand in hand, and it’s very common for legal challenges and changes to impact on the tax treatment of a deal, and likewise for the correct tax treatment to trigger the renegotiation of contracts, or further compliance questions to be asked.
In summary, your tax (and legal!) teams are eager to play their role in supporting new sector initiatives, and helping their institutions navigate the current crisis. They want to be enabling partners, and not blockers. They know that the tax tail should not wag the dog, but at the same time it’s obviously important for the dog to know it has a tail.
There are too many stories of tax teams only finding out about something once it is too late, and are then on the back foot, firefighting, rather than being able to add real value and/or mitigate tax by suggesting alternative structures.