How to account for a grant in micro-entity accounts under FRS 105
Short version. FRS 105 has specific recognition rules for government grants. Its government-grant section does not automatically decide the treatment of a grant from a private body. A spending restriction or an unspent balance alone does not settle whether an amount is income now or a liability in your accounts. Apply the accounting treatment determined for your company's circumstances.
This article is general guidance, not accounting advice. We cannot decide whether your specific grant should be recognised now or deferred. Use your understanding of the grant terms and any accounting advice you have received when preparing the accounts.
1. Government grants
Section 19 of FRS 105 applies to government grants. Under paragraph 19.7, a government revenue grant is recognised over the periods in which the related costs are recognised. Under paragraph 19.8, a government grant compensating for costs or losses already incurred, or giving immediate support with no future related costs, is recognised when receivable. A government asset grant is recognised over the asset's expected useful life. A deferred part is shown as deferred income rather than deducted from the asset.
For example, suppose a government grant of £6,000 covers £3,000 of eligible running costs in each of two accounting periods. If the paragraph 19.7 conditions apply, the prepared accounts can recognise £3,000 alongside this period's costs and carry £3,000 as deferred income until the later costs are recognised. A grant giving immediate support with no future related costs follows paragraph 19.8 instead. These examples do not determine the treatment of a private grant.
2. Grants from other bodies
Section 19 is expressly about government grants. For a grant it does not address, FRS 105 paragraphs 8.4 and 8.5 guide the development of an accounting policy using the standard's definitions and recognition principles. The grant agreement and obligations matter. A restriction on use does not on its own prove that an unspent amount is a liability.
3. Accounts presentation
A grant your accounts recognise as income to support costs, rather than payment for goods or services, can appear within Other income in the micro-entity profit and loss account. A payment that is actually for goods or services may instead be turnover. If your prepared accounts carry a balance forward as deferred income, show that balance in Accruals and deferred income on the balance sheet. Include any cash still held within Current assets. Do not also show the deferred amount as this period's profit and loss income.
Deferral and taxability are separate questions. Other income not taxable applies only to income your accounts have recognised that your company treats as not chargeable. It does not defer the accounting recognition of a grant. A later income recognition does not automatically mean that every amount is taxable.
4. Entering prepared figures
SimpleCompanyTax uses the amounts and treatment in your prepared accounts. For the exact Profit & loss, Balance sheet and Tax adjustments fields, read our grant filing guide. Review the accounts and tax computation before submitting.