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Reporting Covid-19 support payments

Updated on October 18, 2026

Last updated: 16 October 2026

Are grants taxable?

Most grants and support payments a business receives from government or public bodies are taxable. They form part of your profits for income tax (sole traders and partnerships) or corporation tax (companies). This applied to the Covid-19 support schemes and still applies to most grants available today.

Revenue grants and capital grants

Type of grant Examples Tax treatment
Revenue grant Grants towards wages, running costs, training, apprenticeship incentive payments, local authority business support Taxable income, matched against the costs it relates to
Capital grant Grants towards buying equipment, vehicles or building works Usually reduces the cost on which capital allowances can be claimed
Payments for lost income Compensation for lost profits Taxable income
Loans Government-backed loans Not income, but any written-off amount may become taxable

Timing: when is a grant taxed?

If you use the cash basis, a grant is taxed when you receive it. If your accounts are prepared under UK GAAP (accruals basis), a revenue grant is recognised in the period the related costs are incurred. For example, a grant received in March to cover staff costs for April to June should be matched against those months, which may fall into the next accounting period.

Covid-19 support payments

Grants under the Covid schemes, including SEISS and business rates grants, were taxable. Coronavirus Job Retention Scheme grants were taxable too, but the wages they covered were deductible. If a grant was overclaimed, HMRC could recover it through a special income tax charge. Any issues with these grants should now be resolved, but HMRC can still open enquiries within its normal time limits.

Worked example

Ali, a sole trader, receives a £3,000 local authority grant to cover the cost of a training course costing £4,000. The grant is taxable income and the course is a deductible expense. Net, Ali’s profit falls by only £1,000. If the grant had been for a £10,000 machine, his annual investment allowance claim would be on £7,000, the net cost.

VAT on grants

Grants are normally outside the scope of VAT because they are not payment for a supply. Check the terms, though. If the “grant” is really payment for services you provide to the funder, VAT may be due.

What about other support?

  • Energy bill discounts: these reduce your costs, so there is nothing extra to declare.
  • Employment allowance: reduces employer NIC; not taxable income.
  • R&D tax credits for companies: the RDEC expenditure credit is taxable.
  • Charitable or lottery grants: usually taxable if paid to a trading business.

Keep the paperwork

Keep the grant offer letter, conditions and any monitoring reports. These show whether the grant is revenue or capital, the period it covers and whether it might have to be repaid, which affects how it is treated in your accounts.

Frequently asked questions

Do I declare a grant if I made a loss?

Yes. It reduces the loss.

Are grants paid to individuals taxable?

Personal grants, such as student grants, usually are not. Business grants are.

Where do I put grants on my tax return?

Sole traders include them in other business income.

Do capital grants need to be repaid?

Only if you break the grant conditions.

Related: VAT on coronavirus grants, SEISS and business grants and applying for a customs grant.

Talk to Accotax

Want this handled for you? Our team at Accotax can help with accounting for grants and support payments. See our accountants for small businesses service, or contact us for a free, no-obligation quote.

This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.

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