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HMRC internal manual

Business Income Manual

Farming: timing of recognition of grants and subsidies

S25 Income Tax (Trading and Other Income) Act 2005, S46 Corporation Tax Act 2009

The time at which income should be recognised for tax purposes can be a complex area. Detailed guidance is provided at BIM31090 - BIM31110 to which reference should be made in any case of doubt or difficulty..


The starting point in computing the farmer’s taxable profits is accounts prepared in accordance with generally accepted accounting practice (‘GAAP’).

For entities reporting under current UK GAAP, FRS 101 or EU Endorsed IFRS it is generally accepted that in the majority of cases the most appropriate accounting policy for grants is to recognise the income as accruing on a periodic basis over the term of the agreement with expenses matched, though practically speaking this can be accepted as being achieved as and when those expenses are incurred. Each case will of course depend on its own facts.

For entities reporting under FRS 102 there are two alternative approaches permitted. The first approach, the ‘accruals method’, is comparable to that applied under current UK GAAP. The second approach permits recognition of grant income on a ‘performance method’ basis. Under this latter approach grant income is recognised either at the point of fulfilling performance criteria or, where there are no such criteria, on receipt of the grant funds.

A basis which is arrived at from the correct application of generally accepted accountancy principles to the particular facts is a valid basis for determining timing issues provided it does not offend the taxing statutes as interpreted by the Courts. Although there may be more than one acceptable basis, a valid basis, once adopted, should be used consistently unless there is good reason for a change. (See BIM34000 onwards.)

Where an acceptable basis has been adopted in the accounts attempts to use some other acceptable basis by means of adjustments in the tax computations should be resisted.

See Helpsheet 232 (reproduced at BIM55410) and BIM55430 regarding the effect of certain grants on the carrying value of stock.

Timing issues can be complex and hard to resolve. Unless, in a particular case, a substantial deferment of tax is potentially involved, you should not normally challenge the basis used for recognising grants and subsidies in farming accounts so long as:

  • it is consistently adopted, and
  • the whole of the payments are brought into the computation of profit at some time.