Are grants taxable? Am I trading?

Image - Are grants taxable? Am I trading?You asked, so I’ll answer – Are grants taxable? Am I trading?

The question “Are grants taxable?” has several answers, as it depends whether you are classed as trading or not by HMRC for corporation tax purposes, and also whether the grant is really a grant. Plus there’s also the VAT status of the grants to consider – which is included in the separate article Are grants subject to VAT?.

To start with you should assume that grants are taxable (unless you are a charity which doesn’t pay corporation tax). In reality, providing you spend the entire grant (which is very likely due to the nature of grants), there would be no tax to pay, as there would be no profit/surplus on the grant. If you’re able to retain any surplus on the grant, this proportion would be taxable. Also, regardless of your legal structure (so this includes charities) – if the grant is really a contract then you may need to pay tax on it (as detailed below).

Grants for specific projects may be non-taxable. To decide if any tax is payable, you will need to look at whether you are classed as trading or not.

Is the grant dependent on you achieving specific results i.e. is it results based?

If you get paid when you someone completes the training, gets a job, starts a business etc. then you’re more likely to be trading, whereas if the grant is fixed regardless of what you achieve then you’re unlikely to be trading.

Are you trying to make a profit from the project? If your activities are free and you don’t make any money from delivering it – so the grant covers the costs – then it’s probably not trading, whereas, if you make a profit it’s more likely to be seen as trading.

The final area to consider is whether the project meets the badges of trade criteria which looks at whether you are operating with a view to make a profit and like a business (see the previous article on whether directors are employed/self employed as this includes the badges of trade) – you can also check them out via www.hmrc.gov.uk/manuals/bimmanual/BIM20205