Accounting for grants

I am in the process of setting up a new business and have applied for some grants. Will these be taxable?

1st September 2008

Generally speaking, grants are set against the expenditure for which they were granted. For example, if you receive a grant for advertising, the amount of that grant will be deducted from advertising costs in your accounts, thus increasing your profits, and therefore the tax due on them.

If the grant is for a capital item, such as plant and machinery, then the cost of that capital item (asset) is reduced accordingly (depreciation) for the purposes of calculating capital allowances.

Some grants may be tax-free - and you should always read the small print or conditions carefully, or get your professional advisor to do so for you, before you proceed.

By Jo Nockels

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