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HMRC internal manual

Business Income Manual

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Specific receipts: grants and subsidies: introduction

Financial assistance in the form of grants is subject to the normal taxation rules, as supplemented by S105 Income Tax (Trading and Other Income) Act 2005 and S102 Corporation Tax Act 2009 (see BIM40465). Under normal rules the tax treatment of grants will depend on whether they are capital or revenue.

Revenue grants

Grants which meet revenue expenditure, such as interest payable, are normally trading receipts.

See also Smart v Lincolnshire Sugar Co. Ltd [1937] 20TC643 and Burman v Thorn Domestic Appliances (Electrical) Ltd [1981] 55TC493.

Capital grants

Grants which meet capital expenditure are normally not trading receipts.

Grants that may be capital in nature include those paid to acquire capital assets or to facilitate the cessation of a trade or part of a trade.

See The Seaham Harbour Dock Co. v Crook [1931] 16TC333).

A capital grant reduces any qualifying capital expenditure for capital allowance purposes, see CA14100.

You can find guidance on how grants are set against capital expenditure for chargeable gains purposes at CG15288 (S50 Taxation of Chargeable Gains Act 1992 (TCGA 1992)).

You can find guidance on how a capital grant may be treated as being derived from the disposal of assets (for example, goodwill) at CG12940 onwards (S22 TCGA 1992).

You can find guidance on the treatment of grants under the Corporation Tax intangible assets regime at CIRD12725, 13030.

Undifferentiated receipts

Some grants may not be for a specific purpose. These are termed undifferentiated receipts. An undifferentiated receipt should be regarded as on revenue account (see Poulter v Gayjon Processes Ltd [1985] 58TC350 and Ryan v Crabtree Denims Ltd [1987] 60TC183).

For the treatment of undifferentiated grants from Highlands & Islands Enterprise see BIM40470.

Any case of doubt or difficulty, not covered by specific guidance, should be referred to CTISA (Technical).