The main sources of the University’s outside the scope income are the grants received from Government, EU, Research Councils, and Charities. So long as the results of the research are immediately disseminated into the public domain, then there is no vatable supply to the sponsor.
For collaborations with other universities or eligible bodies when this university receives the total grant for the project for distribution to the other participants, then there is no supply and the transaction is outside the scope of VAT.
There is a risk however, that any sub-contract could create a vatable supply thereby making all the VAT irrecoverable. It is important to follow all the Research Governance procedures.