Are grants taxable for a limited company? Grant income and Corporation Tax
Short version. A grant towards a company's trading costs is normally a trading receipt. A grant towards capital expenditure is normally not a trading receipt, but can change the expenditure qualifying for capital allowances. A spending restriction alone does not make a grant tax-free. The grant's terms, purpose and your company's prepared accounts matter.
This is general guidance, not advice on a particular grant. Your company prepares its figures and determines the accounting and tax treatment for its circumstances.
1. Revenue grants
HMRC says grants meeting revenue expenditure are normally trading receipts. A taxable grant towards a trade belongs in trading profit, even when your accounts show it within Other income rather than turnover. A grant towards the costs of letting property belongs with property business receipts. Income outside those activities may have a different Corporation Tax heading.
A grant supporting costs without paying for goods or services is generally outside turnover. A payment called a grant that actually pays for goods or services can be turnover, depending on the arrangement and your prepared accounts.
For example, if prepared accounts recognise a £2,400 grant towards trading wages as taxable income this year, the company can include £2,400 in Other trading income. The wage costs remain in Staff costs. The grant does not become a sale merely because it supports the trade.
2. Capital grants
HMRC says a grant meeting capital expenditure is normally not a trading receipt. It may reduce the expenditure on which the company claims capital allowances. The general rule and its exceptions depend on who contributed and whether that person can claim a deduction or allowance. Read our capital grants and capital allowances guide before entering your prepared claim.
3. Restricted and deferred grants
A restriction on spending does not by itself decide when a grant becomes income or whether it is taxable. Government-grant recognition under FRS 105 has specific rules. A grant from a private body requires the company's accounting policy to address the relevant facts. Read our FRS 105 grant accounting explanation and use any accounting advice you have received.
If your prepared accounts carry part of a grant forward as deferred income, that part is not income in this period's profit and loss. When the accounts later recognise it, determine the tax treatment of the amount recognised. Do not treat deferral as an Other income not taxable adjustment.
4. Where to enter a grant
SimpleCompanyTax lets you enter the figures and classification from your prepared accounts. For exact wizard fields, recognised taxable and non-taxable parts, and the limitation for a one-off receipt in a long accounts period, use our grant filing guide.
5. CICs and charities
A community interest company is generally subject to Corporation Tax as a company: its CIC status does not itself exempt a grant. A charity that claims an exemption on all or part of its income may need the CT600E supplementary pages. Eligibility depends on the organisation and the receipt. HMRC explains CIC tax status and provides CT600E guidance.
6. Common mistakes
- Entering every receipt labelled “grant” as turnover, even when it supports costs rather than buying goods or services.
- Putting a taxable trading grant in box 205, where same-trade-only losses cannot relieve it.
- Using a tax adjustment to defer cash that the accounts have not yet recognised as income.
- Assuming a spending restriction alone establishes a liability or tax exemption.
HMRC also explains that a receipt needs an identifiable taxable income source: being a non-capital receipt of a trader does not automatically make it a trading receipt. See BIM15035.