Grant - taxable income?

Hazel Thomson
Hazel Thomson Registered Posts: 11 Regular contributor ⭐ 😼 ⭐
I have a client who is a sole trader in the motor industry, trading in performance, modifications and general repairs of motor vehicles.

He was approached by a local college who asked if he would take on one of their day release students as an apprentice and said that he could get a grant to fund it.

He took on the student as an apprentice paying him the minimum wage and teaching him on the job and got the grant.

I am not sure if the grant is taxable income, I spoke to HMRC technical team but they were unsure also and asked if I would write in with my question and they would reply in writing. However, I would like an answer much sooner than that.

I guess the question is, is this revenue income but I feel that there is perhaps more to it than that. I have searched and read up on any info I could find but I am still not confident that this is taxable income.

Has anyone got experience or knowledge of the tax treatment for this kind of grant?
If so I would love to hear from you.


  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 🎆 🐘 🎆
    As a general rule most grants are taxable, with some exceptions.

    My gut feel is this is taxable and would net off against the costs of the enployee, but I do not have a definitive answer. However if its a 'getting people back into work because there's loads of unemployment' incentive, then there is a chance it is tax free.

    I would be interested to hear what HMRC come back with.
  • jilt
    jilt Registered Posts: 2,903

    I spoke to HMRC technical team but they were unsure also and asked if I would write in with my question and they would reply in writing. However, I would like an answer much sooner than that.

    Sorry Hazel I don't have the answer for you just wanted to say I am fed up with calling HMRCs technical team and being told they 'don't know' or 'I think so'.

    Best of look in getting an answer in writing. I requested some employment info for a client who didn't have a P45, I first requested it early May, have called 3 times in total and the letter finally came from them this week!!

    My money is on it being taxable, although as Jenni says if it's classed as an incentive to get people back to work you never know.
  • Dcollins
    Dcollins Registered Posts: 179 🎆 🐘 🎆
    I agree with Jilt and Monsoon, grants are more likely to be taxable than not.

    The taxation of grants received follows normal principles, so if the grant was received in relation to trading activities, and not capital expenditure, I'd assume it's taxable.

    If you write to HMRC send a copy of the grant document - there seem to be schemes with different names, sometimes short-lived, so names and descriptions can vary.
  • Chinless Wonder
    Chinless Wonder Registered Posts: 61 💫 🐯 💫
    Here's a question on a related subject - Grants and VAT

    If you are VAT registered, as we all know, you sell products/services and charge Output Tax which you repay to HMRC; you can reclaim the Input Tax that you have spent on your purchases etc made in supplying those products/services.

    What if you receive grant funding, which is NOT subject to payment of Output VAT? (because it does not involve a "supply"). Is it legitimate to still reclaim the Input VAT on your costs when you are not paying any Output VAT on the income?

    EG a theatre company receive a block of public funding to provide publicly accessible work. They have a number of costs in making the work - rent, costumes, props, yadayada which mostly include VAT. Can they reclaim the VAT even though they are not handing over any VAT on their funding?
  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    Yes I would have thought so. Surely the grant income is not exempt but zero rated. The grant was given without VAT being charged so there is none to 'handover'. My opinion anyway.
  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 🎆 🐘 🎆
    I would call grant income outside the scope as it's not a taxable supply. I agree that the input VAT is reclaimable, to the best of my knowledge. I would have thought though that any specific grant for a specific task given to a VAT reg entity would fund the net cost leaving the entity to pay and reclaim the VAT element. I know this is harder to quantify with round sums but I think it unlikely a grant would cover the whole gross cost of a project and thus the VAT element could be deemed to be paid through other taxable turnover.

    Not in a position to look it up right now.
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