B5.108 Compensation etc—introduction
Government interventionism in agriculture has taken a variety of forms—commodity price fixing, basic (formerly single) payment scheme, and grants and subsidies to name but three. One of the least precise and systematic areas for consideration is the interaction of government grants and subsidies with government taxation. No clear statement of principle seems to have emerged; it is necessary to analyse the purpose and function of each government grant in order to form a view as to how it should be treated for tax purposes.
If a grant is receivable for loss or sterilisation of a capital asset, land, buildings or plant, then prima facie, it is not liable to income or corporation tax, but is liable to capital gains tax. If what has been received is in substitution for earnings or profits, or represents a government subsidy of earnings or profits, then it probably falls to be included in the profit computation for income or corporation tax1.
There is a third possibility — certain grants are receivable as an incentive towards capital expenditure on plant or buildings. Expenditure incurred by the farmer may qualify for tax relief in the form of capital allowances, but he cannot claim on that part of the expenditure which has been met from a government source (see B3.111).
These principles are not always strictly observed. In some cases, treatment is governed by precedent or concession, and some precedents were set at a time when the alternatives of income