Types of income

Introduction

1. The Open University is an exempt charity, therefore the work it undertakes must be for the public benefit. The primary objective of the University is ‘…the advancement and dissemination of learning and knowledge by teaching and research’ (See the Royal Charter).

2. Activities which support the primary objective are described as ‘Primary Purpose’ must by law:

• Meet the University’s objectives
• Be within one of the areas of charitable activities defined by charity law (usually the advancement of learning i.e. directly associated with, or ancillary to, education, teaching or research
• Be for the public benefit i.e. benefits and is accessible to wider/section of public

3. Activities outside these requirements are described as ‘Non-Primary Purpose’. The extent to which the University can undertake non-primary purpose activities is constrained by charity law, tax (VAT & Corporation tax) and financial and resource considerations.

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Income types

4. To note that income is classified by: -

• Transparent Approach to Costing (TRAC) activity specifically Research, Teaching or Other. If an activity is a mix of research and non-research activity, please consult your Finance Business Partnering team for further guidance.
• Type of income
• HESA category reporting (discipline and funder type)

5. The most common income types are documented below: 

Research activity

Comprises creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of humankind, culture and society and the use of this stock of knowledge to devise new applications (Frascati)

Primary purpose, ie research grant	Non-primary purpose, ie contract research
University led research: Research initiated by the University to advance human knowledge Collaborative research: collaborations with other research institutions and/or external parties to carry out research. Any sub-contract of research should confer no direct benefits to the subcontracting institution Other research activity: funded for the 'public benefit' and is either not expected to generate any intellectual property, or, if it does, will make any reports/findings freely available to others (within a reasonable time period). Any private benefit to the funder is incidental and outweighed by the public benefit	Contract research: work fulfils the definition of research, but the contract restricts the University’s right to publish, or the findings and intellectual property directly benefit the funder and/or remain the property of the funder. Contract may arise through: Commission through a tendering process Jointly initiated collaborative project between the University and an external party As a result of a specific request from an external party
Typical funders: Research Councils, Charities, Public Sector, Foundations and Trusts	Typical funders: industry, charities, government (tenders), commercial organisation

Non-research activity (teaching or other)

Providing a service to an external organisation which does not fall within the definition of a research grant or research contract, it will be considered to be a 'Services Rendered' contract.

Primary purposes, ie other grant

Non-primary purpose, ie consultancy

Fees for: Modules or qualifcations Conferences Non-research and travel grants CPD income Scholarships or sponsorships Curriculum production or presentation OfS/HEA contracts: eg development of teaching materials that don’t embody original research Knowledge exchange: impact networking, public engagement, patents, licences and/or travel grants to attend conferences/events

Consultancy is the provision of expert advice and work which while it may involve a high degree of analysis, measurement or testing, is crucially dependent on a high degree of intellectual input from the institution to the client (commercial or non-commercial) without the creation of new knowledge.  Purchase by an external party of: Skills and expertise of University staff and/or Access to University equipment or facilities Activities may include: Advisory services and expert opinion Analysis and routine testing services Product and process development Specialist training

6. To note that the project or contract Lead institution is the organisation or institution that will be held responsible by the funder/contractee for:

• submitting the application/proposal
• signing the main grant agreement/contract
• managing the grant/contract both scientifically and financially
• the administration of the grant on behalf of the other organisations participating in the project
• the overall delivery and reporting of the project

7. It is possible for two or more organisations to receive a joint award/contract with both (or all) parties equally identified in the award however one organisation will usually have to be identified as lead institution for financial purposes. Usually the lead organisation will be receipt of the full grant/contract income and would be responsible for the distribution the grant/contract income to the collaborators./p>

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Income type: common features

Research grant and contract research

• Frascati research
• Revocable transfer of funds
• (May be) subject to an application process including peer review or other vetting procedure
• Won competitively
  • Open competition
  • Tendering
• Generates new knowledge
• VAT and corporation tax implications
• Knowledge Transfer Partnerships - Government funding-VAT exempt  partner element – VAT applied

Grants (research or non-research)

• Supported by grant agreement
• The University retains ownership of the arising intellectual property
• No publication restrictions
• Payment may be
  • In advance or arrears
  • Released on reporting points
  • Linked to time periods (i.e.annual)
• VAT likely to be outside the scope
• For public benefit

Contract research

• If not won competitively will arise from negotiations between the parties
• Ownership of arising intellectual property is negotiated between parties
• Possible restrictions on publications
• Payment in arrears and tied to milestones and deliverables
• VAT applied/Corporation tax implications
• Invoice requirement
• External party benefits/has competitive advantage from research

Consultancy

• If not won competitively will arise from negotiations between the parties
• External party owns intellectual property
• Restrictions on publications (results are usually confidential)
• Relies on existing know-how, expertise and assets
• Shorter timescales
• VAT applied / Corporation tax implications
• Invoice requirements
• External party benefits from activity

Donation/gift characteristics

• Irrevocable transfer of funds
• May be subject to an application process
• Unrestricted use of funds or gift agreement required upfront with time period stated
• No deliverables or benefits expected by the donor
• Cannot include use of donor logo (sponsorship)
• Unlikely to have VAT applied

Contracts (commercial or service contract)

• If not won competitively will arise from negotiations between the parties
• External party owns IP
• Relies on existing know-how, expertise or assets
• VAT applied / Corporation tax implications
• Invoice requirement
• External party benefits from activity
• May be a commercial service or provision i.e. sample analysis or system software
• Knowledge Transfer Partnerships - Government funding-VAT exempt  partner element – VAT applied

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Income type definition

Definitions

Research and experimental development (R&D)

Creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge.

Activity must be novel, creative, uncertain, systematic, transferable and/or reproducible

The term 'R&D' covers three types of activity: basic research, applied research and experimental development.

Basic research

Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any application or use in view

Applied research

Applied research is original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific, practical aim or objective.

Experimental development

Systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes

See examples of basic research, applied research and experimental development by discipline (pages 54-57 in the Frascati manual)

Exclusions

Activities that should normally be excluded include:

• scientific and technical information services
• testing and standardisation
• feasibility studies
• specialised health care
• policy-related studies
• programmatic evaluations
• purely R&D financing activities
• indirect supporting activities

For more detail see pages 76-79 in the Frascati manual.

Contract research

Research often commissioned under a tendering process, where the primary purpose is to benefit the funder (e.g. inform policy), and where (usually) any IP arising from the research remains the property of the funder. Even if the University retains control of publication rights and IP, it is contract research if there is a direct relationship between the level of benefits the funder gets and the amount they pay.

Consultancy

Consultancy involves the deployment of existing knowledge for the resolution of specific problems for the benefit of an individual/organisation who has approached the academic or University. It involves giving expert advice or problem-solving and applies a consultant's expert knowledge but does not involve the creation of new knowledge.

Donation/gift

To be classed as a donation/gift, receipt of funds or assets must have been freely given, with no consequent obligation on the University to provide goods or services to the benefit of the donor.

To handle across a defined time period a gift agreement must be signed in advance of receiving the income.

Research-related (other) activity

Projects falling under research related tend to be from research funders but are for conference/travel, impact, networking, public engagement and knowledge exchange but do not meet the Frascati definition.

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Awards Management System, financials and approvals

When the OU is the Lead on any externally funded project it is important that the income/price and the costs are captured as part of the full economic cost (FEC) and University approval is gained prior to submission or application. This should be completed via the project’s budget tab and the approvals workflow in the Awards Management System.

As part of the due diligence and approvals process RES will check that the ‘Project Type’ and ‘Project Activity Type’ is correct and inform Research Managers if an amendment is required.

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Information sources

Further information

• TRAC
• Frascati
• Finance intranet site (internal link only) (Projects), or contact you Finance Business Partner Team
• RES AMS intranet site
• Consultancy/Intellectual Property policy

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