Received a grant? Five Corporation Tax mistakes small companies make
Short version. Five common grant filing mistakes, from putting trade income in box 205 to confusing deferred income with a tax adjustment.
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A grant can affect a company's accounts, its Corporation Tax computation and its capital-allowance claim in different ways. These five common mistakes can make the filing disagree with the treatment the company has prepared. This is general guidance, not accounting or tax advice for a particular grant.
1. Leaving a revenue grant out of income
HMRC says grants meeting revenue expenditure are normally trading receipts. Use the amount your accounts recognise for the period. Receiving cash and recognising income are separate questions.
2. Putting a trading grant in box 205
A taxable grant for the trade belongs in trading profits. Box 205 is for income without another heading. The distinction can affect brought-forward trading-loss relief. Our grant filing guide shows the exact rows.
3. Assuming a restriction makes the grant tax-free
A restriction on spending does not decide taxability or whether the accounts defer income. FRS 105 has government-grant rules. A grant from another body follows the company's accounting policy for its facts. Read our accounting explanation.
4. Using a tax adjustment to defer income
Other income not taxable applies to an amount already recognised in the accounts that the company treats as not chargeable. A deferred balance belongs on the balance sheet when that is the treatment in the prepared accounts. The cash held is included in Current assets.
5. Assuming every capital grant reduces allowances
The general rule can reduce qualifying expenditure, but section 536 of the Capital Allowances Act 2001 contains a conditional exception for certain private contributions. Use your prepared qualifying expenditure. Our capital grants guide explains the conditions.
SimpleCompanyTax files the figures and treatment you enter. Read when grants may be taxable, then check the accounts, tax computation and CT600 before submitting.