Capital grants and capital allowances: when a grant reduces your claim
Short version. A grant from a public body towards an asset normally reduces the expenditure on which a company can claim capital allowances. A private contribution may have a different result if the statutory conditions are met. Use the qualifying expenditure and claim from your prepared capital-allowance calculation.
This is general guidance, not advice on a particular grant or asset. Your company determines the claim from the grant terms, contributor and expenditure.
1. General rule
Under Capital Allowances Act 2001 section 532, expenditure met by a public body or another person is generally treated as not incurred by the claimant. That normally means claiming allowances on the qualifying cost after the contribution. This is a capital-allowance rule, not an instruction to reduce the asset value in your accounts.
2. Exceptions
The general rule is subject to sections 534 to 536. Section 535 deals with certain insurance and compensation amounts. Under section 536, a contribution from someone who is not a public body does not reduce qualifying expenditure where that person can neither claim allowances on it nor deduct it in a trade or relevant activity, applying the section's assumed tax-charge condition. That exception does not apply to structures and buildings allowances. Check all applicable conditions in the legislation.
3. Fictional examples
A fictional company buys a £10,000 machine and receives a £4,000 grant from a local council towards it. Under the general rule, £6,000 may remain as qualifying expenditure. Its prepared accounts can still show the machine at the appropriate asset cost and a separate deferred grant balance under the applicable accounting policy.
If a private funder contributes £4,000 towards an otherwise identical machine, section 536 may leave more qualifying expenditure when all its conditions are met. The word “private” alone does not establish the result.
4. Filing the claim
SimpleCompanyTax records the asset amount from your prepared accounts and the capital-allowance claim you supply. Enter your prepared qualifying expenditure in the relevant allowance fields. For the exact wizard rows and any grant income or deferred balance, use our grant filing guide. For a period producing two Corporation Tax returns, allocate an allowance to the return it belongs to using the allocation panel.