When Do You Not Have To Pay Taxes On Grant Money

Grant income can have many forms including private and regime grants. The most important point to consider in regards to grant income, is whether the income really is a grant. The labelling of a payment to you as a grant does not make the income necessarily a grant, even income from a authorities section.

Grant income is income received by you (or your company) for which you practice not take to provide annihilation in return. There may be a requirement to report dorsum on your activities and y'all may only be able to spend the grant on sure expenditure, withal this in itself does not end the income being grant income.

If yous have to provide goods or services to the person or arrangement providing the grant, and so it is not grant income. For example, if DEFRA have an obligation to acquit out a survey, and pay you lot or your visitor to do this work, that is a trading transaction not a grant, even if DEFRA label the income as a grant.

Accounting for grant income

If the grant is for expenditure that you lot would commonly tape in the profit and loss account, the grant income is reflected as income in your turn a profit and loss account. Such a grant may be deferred if information technology relates to specific expenditure which has not yet been incurred. Deferred means recorded on the residual canvas and released to the profit and loss account when the expenditure is actually spent.

If the grant relates to equipment or other fixed assets then the grant income is deferred, and released to the profit and loss business relationship to lucifer with the depreciation of the grant purchased asset.

Corporation tax and income tax on grant income

Grants are generally taxable income, the aforementioned as any other income arising in your merchandise. If the grant is for expenditure that appears in your profit and loss account and you lot can defer the grant income (equally higher up) and so you may not have a tax liability on the income as it will be matched with its intended expenditure. Thus the income and expenditure will cancel each other in your accounts, not affecting your profit or tax figures.

If the grant income is spent on equipment then the grant is not taxable but there is no capital allowance bachelor on the equipment expenditure.

VAT on grant income

Grant income is outside the telescopic of VAT, therefore no VAT is payable when you receive a grant. Care is needed as HMRC are especially keen to ensure that income is non excluded from VAT merely on the basis of a characterization existence applied to the income.

Assuming the grant is outside of the scope of VAT information technology is usually even so possible to repossess the VAT on the expenditure paid for from the grant. This VAT can be reclaimed (subject to being VAT registered and normal reclaim rules) if the expenditure relates to a VAT trade.

If your activities are entirely grant (or donation) funded, or the activities in question are separate from your trade, then the VAT on your costs cannot be reclaimed.

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