Are the Covid-19 Small Business Grants subject to VAT?

Posted on 13th May 2020 by Alexis Outram


Image to represent Are the Covid-19 Small Business Grants subject to VAT?

Many businesses are therefore applying for these grants provided by the Government, via their local authorities. 

A question that has come to light surrounding these grant applications is what are the VAT implications and will the grants be subject to VAT?

The details of the grants that have been made available are on the Government website and for more information you can review these by clicking on the link below: 

https://www.gov.uk/government/publications/coronavirus-covid-19-business-support-grant-funding-guidance-for-businesses

HMRC have not provided guidance on the VAT implications in any of their announcements, however, the basic principles of supply and consideration can be expected to apply. VAT is a tax on supplies for consideration, so where a grant is made, and nothing is expected to be done in return, it will not be subject to VAT.

On this basis VAT does not need to be paid on the grant and the income does not need to be included in VAT returns.

In addition, for businesses that are not registered for VAT, this income does not count towards the VAT registration threshold.

HMRC’s approach is set out in the supply and consideration manual at VATSC06312 of which more information can be found by clicking on the link below:  

https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/vatsc06312

Grant funding can prove a complex area in some cases, as sometimes funding bodies use the term grant when in reality it is payment for a contractual obligation. If a business is receiving what they understand to be a grant, they should always seek advice to check the position.

However, in the case of the business support funding being made available to mitigate the impact of Covid-19, as outlined, based on the longstanding principles of VAT, we would not expect that these grants would fall into this category and should be outside the scope of VAT.


No Advice

The content produced and presented by Streets is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Furthermore, it should not be considered a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset. The information provided by Streets is of a general nature and is not specific for any individual or entity. Appropriate and tailored advice or independent research should be obtained before making any such decisions. Streets does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Streets' visual or audible content.

Information

The content used by Streets has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always seek specific advice prior to making any investment, legal or tax decisions.


Expert insight and news straight
to your inbox

Related Articles


Rent a Room Scheme - another income stream

The rent-a-room scheme is a set of special rules designed to help homeowners who rent-a-room in their home to create a valuable tax free income stream. If you are using this scheme, you should ensure that rents received from lodgers during the current tax year do no exceed £7,500. ...


HMRC to accept service of legal proceedings by email

HMRC has issued an updated ‘news story’ to confirm that, where possible, new legal proceedings and pre-action letters can be served on the department using email instead of post. This measure was originally introduced in April 2020 in response to the COVID-19 pandemic. The update confirms that this is a ...


What are the off-payroll working rules?

The rules for individuals providing services via an intermediary such as a personal service company (PSC) are complex. The rules apply if the worker who provides services to a client through their own intermediary would have been an employee if they were providing their services directly to that ...


You might also be interested in...