VBNB20900 - VAT Business and non-business basic principles: Outside the scope income

Income will be outside the scope of VAT if it is not payment given in return for a supply of goods or services. It is important to establish that an income described as grant or donation is actually an income that is freely given and the donor does not receive anything in return. Whether income is outside the scope of VAT does not depend on its description but on whether there is a direct link between the payment and a supply. Where there is a grant or donation income provided to an organisation, it does not automatically make the activities of that organisation non-business or lead to input tax restriction, each activity carried on by a person must be considered separately.

Examples of outside the scope income

Donations/Grants:

Grants and donations freely given to support charitable activities are not consideration because the donor will not receive anything in return for the amount given. A freely given donation to be admitted into premises (for example a museum) is not consideration; these donations are outside the scope of VAT. On the other hand, if the donation is a fixed amount and without it there will be no admission, then this is consideration for admission into the premises and whether this constitute a business activity depends on other factors set out in VBNB30300.

Similarly, a grant which is given to help a business develop itself is not consideration if the person providing the grant does not receive any goods or services in return or specifies other persons to receive them. However, if a grant is given for a particular purpose and the person providing it, or other persons specified by them, receive the benefit, then the grant may be consideration. For example, if a grant is given for research, but any beneficial results will become the property of the person providing the grant, then the grant is consideration for the provision of the research services.

For more information on payments that are not consideration for a supply, refer to VATSC06000.