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How do I show a government grant in my company's accounts?

Usually spread over what it pays for.

Record a grant only once you are reasonably sure of meeting its conditions and getting it. A grant towards costs is usually income as those costs are. A grant towards an asset is income over the asset's life, and is not taken off the asset's cost.

Published

At a glance

Applies to
Your company, if government gives it money or other resources in return for meeting conditions about its
Grant towards costs
It is income in the same periods as the costs it pays for. A grant for past costs, or for immediate support, is income when it becomes due
Tax
If a grant meets part of an asset's cost, are usually worked out on the cost less the grant

Sources

This entry is general information for directors of UK private limited companies, not advice about a particular company.

What to do

  1. Check it is a grant. Government must be giving your company resources in return for meeting conditions about its .

  2. Wait until you are reasonably sure. Record it only once you expect to meet the conditions and to receive the grant.

  3. Decide what it pays for. Each grant, or each part of one, is either towards an asset or towards running the business, such as costs, losses or support.

  4. Match it to what it pays for. Match a grant for costs to those costs. Spread a grant for an asset over the asset's . A grant for past costs, or for immediate support, is income when it becomes due.

  5. For a grant towards an asset, reduce the cost for capital allowances. As a general rule, your company claims allowances only on the part of the cost the grant did not meet.

Sources

How it works

When a grant goes into your accounts

A is help from government that transfers resources to your company. In return, your company has met, or will meet, conditions about its .

Your company records a grant only once it is reasonably sure of two things. It will meet the conditions, and the grant will be received. This applies to grants of things other than money too.

A grant is recorded at the of what your company receives or is owed.

Some help from government is not a grant. That includes help that cannot reasonably be valued. It also includes dealings with government that cannot be told apart from your normal .

Sources

The detail The exact rules

glossary: a government grant is "Government assistance in the form of a transfer of resources to an entity in return for past or future compliance with specified conditions relating to the operating activities of the entity".

Paragraph 19.1: Section 19 applies to government grants. Paragraph 19.2: government grants exclude forms of government assistance that cannot reasonably have a value placed on them, and transactions with government that cannot be distinguished from the 's normal trading transactions.

Paragraph 19.3: grants, including non-monetary grants, are not recognised until there is reasonable assurance that (a) the micro-entity will comply with the conditions attaching to them and (b) the grants will be received. Paragraph 19.4: grants are measured at the fair value of the asset received or receivable. Paragraph 2.36 sets out how fair value is estimated.

Paragraph 19.6, as amended by the Periodic Review 2024 for periods beginning on or after 1 January 2026 (earlier use allowed if all the amendments are applied together): a micro-entity classifies "a grant, or each part of a grant", either as a grant relating to revenue or a grant relating to assets. Before the amendment, it classified "government grants" in the same two ways. The same amendments show "government assistance" in paragraph 19.2 in bold type.

Sources

A grant towards costs: income when the costs are

A grant towards costs is income in the same periods as the costs it pays for. So if the costs fall in two years, the grant does too.

There is an exception. A grant that repays costs or losses you have already had is income when it becomes due to you. So is a grant for immediate support with no future costs attached.

For example

Say your company gets £1,200 towards a cost that falls evenly from 1 July 2026 to 30 June 2027. Its year ends on 31 December.

Income in 2026
£1,200 × 6 ÷ 12
£600
Income in 2027
£1,200 − £600
£600

Each year's grant income matches that year's costs.

If instead

If instead the grant repays costs from before July, it is all income when it becomes due.

Sources

The detail The exact rules

Paragraph 19.7: government grants relating to revenue are recognised in income on a systematic basis over the periods in which the micro-entity recognises the related costs for which the grant is intended to compensate.

Paragraph 19.8: a government grant that becomes receivable as compensation for expenses or losses already incurred, or for the purpose of giving immediate financial support to the micro-entity with no future related costs, is recognised as income in profit or loss in the period in which it becomes receivable.

Paragraph 2.24: financial statements are prepared on the , recognising items as assets, , equity, income or expenses when they satisfy the definitions and recognition criteria. Our working: Section 19's spreading fits that basis.

Sources

A grant towards an asset: income over the asset's life

A grant towards an asset is income spread over the asset's expected . also spreads the asset's cost, less any value left at the end, over its useful life. So each year, grant income sits beside that year's share of the cost.

The part of the grant not yet counted as income is "". It is held separately. It is not taken off the asset's value in your accounts. So the asset is still shown at cost less depreciation, with no for the grant.

For example

Say your company buys a £4,000 machine, worth nothing after 4 years, with a £1,000 grant towards it. Both are spread evenly.

Depreciation each year
£4,000 ÷ 4
£1,000
Grant income each year
£1,000 ÷ 4
£250
Net cost each year
£1,000 − £250
£750

The machine starts at its £4,000 cost, not £3,000.

Sources

The detail The exact rules

Paragraph 19.9: government grants relating to assets are recognised in income on a systematic basis over the expected useful life of the asset. Paragraph 19.10: where part of a grant relating to an asset is deferred, it is recognised as deferred income "and not deducted from the of the asset".

Paragraph 2.43: a micro-entity does not assets and liabilities, or income and expenses, unless the standard requires or permits it. Our working: paragraph 19.10 fits that rule.

: the Section C balance sheet formats include "", and the profit and loss format includes "Other income". The Section 19 paragraphs do not say which of the Section C headings holds deferred grant income, grant income or a repayable grant.

Sources

How a grant is taxed

For Corporation Tax, a grant follows the normal rules. Its treatment depends on whether it is capital or revenue.

A grant that meets day-to-day costs is normally a . A grant that meets the cost of an asset normally is not. A grant with no specific purpose is treated as revenue.

For , the general rule is that spending met by a grant does not count. Your company claims allowances only on the cost less the grant. This applies even if the grant arrives after you buy the asset. There are exceptions.

So your accounts do not take the grant off the asset's cost, but capital allowances usually do.

For example

Say the £4,000 machine above qualifies for capital allowances, and none of the exceptions applies to the £1,000 grant.

Cost for capital allowances
£4,000 − £1,000
£3,000

Allowances are claimed on £3,000, not £4,000.

Sources

The detail The exact rules

HMRC's Business Income Manual (BIM40451): grants are subject to the normal taxation rules, so their treatment depends on whether they are capital or revenue. Grants which meet are normally trading receipts; grants which meet are normally not. An undifferentiated receipt, a grant not for a specific purpose, should be regarded as on revenue account.

Capital Allowances Act 2001, section 532: the general rule is that a person is regarded as not having incurred expenditure to the extent that it has been, or is to be, met directly or indirectly by a public body or another person. It is subject to the exceptions in sections 534 to 536. HMRC's Capital Allowances Manual (CA14100): the contribution is deducted and capital allowances are given on the net amount, even if the contribution is not received until after the expenditure is incurred.

Sources

Consequences

If you get it wrong

Watch for these mistakes.

  • Counting the whole grant when the cash arrives. A grant for future costs, or for an asset, is spread instead.

  • Taking the grant off the asset. The grant is not taken off the asset's cost. The part not yet counted as income is held as .

  • Recording it too early. If meeting the conditions, or getting the grant, is still in doubt, it does not go in yet.

  • Spreading an immediate-support grant. If it has no future costs attached, it is all income when it becomes due.

Sources

Less common situations

The grant has to be paid back. It becomes a debt once repayment meets the test for a . That needs a present duty to transfer resources, arising from past events.

Conditions could still mean paying it back. must give the total of any not on the balance sheet. The rules do not say directly whether that covers such a grant. If repayment is possible, get advice on whether to include it.

The grant is not money. It is recorded at the of what your company receives.

Sources

The detail The exact rules

Paragraph 19.5: where a grant becomes repayable it is recognised as a liability when the repayment meets the definition of a liability. Paragraph 2.14: for a liability to exist, the has an obligation, the obligation is to transfer an economic resource, and it is a present obligation that exists as a result of past events.

Paragraph 6.2: the notes a UK micro-entity must give cover , numbers, advances and guarantees to directors, and financial commitments, guarantees and contingencies. Paragraph 6A.4: the total of any financial commitments, guarantees and contingencies not included in the statement of financial position must be stated. The Section 19 paragraphs contain no disclosure requirement. Whether a grant that could still be repayable falls within the contingencies total depends on the facts. Neither the grant paragraphs nor the notes paragraphs mention grants in that note.

Sources

Worked example: Bramley Studio Ltd

This is a what-if, separate from Bramley's usual figures. Say Bramley Studio Ltd buys a kiln for £6,000 on 1 January 2026 and starts using it that day. It gets a £1,500 grant towards the kiln. Bramley is reasonably sure it will meet the conditions.

Say the kiln lasts 5 years, has no value at the end, and is evenly. The grant is spread evenly over the same 5 years.

The kiln and its grant in 2026

  • Depreciation

    −£1,200

    £6,000 ÷ 5

  • Grant income

    £300

    £1,500 ÷ 5

  • Effect on 2026 profit

    −£900

    £300 − £1,200

Sources

Balance sheet at 31 December 2026

  • Kiln, cost less depreciation

    £4,800

    £6,000 − £1,200. Not netted with the grant

  • Grant held as deferred income

    £1,200

    £1,500 − £300, shown separately

Sources

Capital allowances

  • Kiln cost

    £6,000

    Say it is plant and machinery that qualifies

  • Less the grant

    −£1,500

    Say none of the exceptions applies

  • Cost for capital allowances

    £4,500

    £6,000 − £1,500

Sources

Say Bramley also gets £800 in December 2026 towards training it will pay for in 2027. It is reasonably sure of meeting the conditions. The £800 is not income in 2026. It is income in 2027, when the training costs are.

Sources

Not covered here

When a revenue grant is taxed, and grants given to you personally rather than to your company. See fixed assets and depreciation, the balance sheet and profit and loss layout, capital or revenue spending and the Annual Investment Allowance.

Where this comes from

59 official sources. Open a group to see them.

The law 11 sources
HMRC 13 sources
GOV.UK 11 sources
Companies House 1 source
FRC 23 sources

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