Government Grant

monkeypuzzle47 Registered Posts: 134 Dedicated contributor 🦉
I will be preparing the accounts for sole trader (day care provider) whom is due to receive a goverment grant from dept schools and families.

Im not sure of the correct treatment in the accounts of the grant. The grant will be used to buy mostly play equipment to use in business.

After speaking with HMRC they have confirmed that this is not taxable and i should put the grant and subsequent expenditure through profit and loss ac and not capital allowances.

I have just read ssap4 and am now a little confused

My question is would the capital items of expenditure have to be shown in the balance sheet, what is the correct accounting and taxation procedure.

any advice appreciated


  • claudialowe
    claudialowe Registered Posts: 275 Dedicated contributor 🦉
    Treating this logically - then surely the accounting entries would be

    DR Bank
    CR Grants received?

    then when the money has been spent

    DR Assets (or whatever it has been spent on)
    CR Bank

    The assets need to be shown on the balance sheet, as they form part of the business (however they were financed).

    Does this help?

  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
    I would do as Claudia says, and then amortise the grant at the same rate which you depreciate the play equipment.

    I've had a similar situation a few years ago and I think that when I completed the tax return I just included grant amortisation under 'other income' but then disallowed both the amortisation and depreciation for tax purposes. And I included full details in the additional information box!
  • monkeypuzzle47
    monkeypuzzle47 Registered Posts: 134 Dedicated contributor 🦉
    thank you for your help.

    I have just read this in an old dfs book:-

    "The treatment of capital grants requires that the grant is treated as deferred credit and brought into the income statement over the expected useful life of the asset which it was used to buy.

    If the plant has an expected life of 10 years the grant therefore will be brought into the income statement over ten years. ie in the current year we transfer 3000 (30000/10 = 3000) to the income statement. The remainder is deferred income."

    Is this what I should do?
  • JodieR
    JodieR Registered Posts: 1,002 Beyond epic contributor 🧙‍♂️
    yes :)
  • mark057
    mark057 Registered Posts: 354 Dedicated contributor 🦉
    I won't be able to provide a conclusive answer but I work with charity accounts at the minute which includes working with grants received.

    If a grant was received then income deferral would only apply if the total grant receipt had limitations imposed on how it could be spent.

    For example you may receive £30 000 but only £10 000 can be spent per financial year. So you would pay your £30 000 into the cash book, allocate £10 000 to credit a restricted income account and account for the remaining £20 000 in a restricted income deferral account as a liability.

    My interpretation of bookkeeping grant receipts is as follows:

    Dr - Cash book
    Cr - Income account (providing the money has no restrictions on when it can be spent)

    Once this is done you would buy your assets with the money so following a bookkeping procedure:

    CR - Cash book
    Dr - Fixed Asset account

    You would apply a method of depreciation to the fixed assets as per normal.

    CR - Accumulated depr on balance sheet
    DR - Annual depr to P & L.

    You could sub-analyse the purchase of fixed assets with the grant money by displaying the income received from the grant into its own account and debiting the annual depr charge to the grant income account.

    Does that help??
Privacy Policy