The taxation applied to government grants is fairly complex. It often depends on who receives it, what the grant is for, and any other number of criteria. It’s usually best to check the grant information when applying, to understand how this will affect your future tax affairs.
Schemes which are designed to offer assistance without a cash award aren’t usually liable to tax. However, cash awards are usually taxable as they are treated the same as revenue. That is, the amount after deduction of allowances and expenses is liable to tax.
What are government grants?
There are a large number of government grants available, though the list of those currently active frequently changes. It’s estimated that the value of grants available is around £5 billion each year. Government grants are generally designed to encourage business development and growth, with funding distributed by official agencies.
Who can apply for a government grant?
Though a small number of schemes have restrictions, most are open to all industries and business sectors. Each scheme tends to set its own eligibility criteria.
The range and availability varies, so you might need advice to find funding suitable for your needs. This might be for training and development, marketing, manufacturing, exporting, research and development, or beyond.
Recording grant funding
If grant income is for expenditure that has not yet occurred, it may be noted on the balance sheet. It will then be entered on the profit and loss (P&L) account when the expenditure is incurred.
If a grant is to be used for fixed assets or equipment, the grant income will be recorded on the balance sheet. When the depreciation is recorded, enter the grant income on the P&L account.
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MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.