VBNB43000 - Specific issues: grant funded bodies

Some organisations receive grants to support their activities. Grants can be issued by a number of bodies including central government, local government, National lottery and other funding bodies.

Although this funding is normally outside the scope, sometimes it can be direct consideration for a supply or third-party consideration for a supply. Guidance on this is given at at VATSC Supply and Consideration VATSC06300.

The receipt of outside the scope income does not automatically mean that an activity is not business or lead to apportionment of input tax. You should look at each grant-funded activity separately and consider the factors/guidelines listed in VBNB30200 to decide if the activity is business or not.

The receipt of money  for a loss-making business activity need not result in input tax restriction. However, in many cases when an organisation obtains outside the scope income, it may indicate that there is a non-business activity. When this happens, an apportionment is needed.

Organisations may incur costs in applying for grants and other income that HMRC treats as being outside the scope of UK VAT. This is particularly true of applications for national lottery funding.

VAT incurred on the process of applying for such funds is input tax if the intended activity the money is being applied for is a business activity. If the activity is not business, for example if it involves the making of no supplies for consideration, the tax incurred on getting the funding is not input tax. It does not matter whether the grant application is successful or not.