My business is struggling financially due to the impact of the coronavirus (COVID-19) and I am considering applying for a grant being made available by the government via local authorities. Would this income be subject to VAT?
Whilst HMRC have not confirmed the VAT implications in any of their announcements, 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.
Grant funding can be a complex area in some circumstances as it is common for funding bodies to use the term ‘grant’ when, in reality, it is payment for a contractual obligation. However, the business support funding being made available to mitigate the impact of Covid-19 does not fall into this category and will be outside the scope of VAT.
Details of various Government support measures available for business can be found online at https://www.gov.uk/government/publications/coronavirus-covid-19-business-support-grant-funding-guidance-for-businesses.