Grants, donations and subsidies

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Grants, donations and subsidies
  • Grants
  • Donations
  • Subsidies

This guidance note provides an overview of the VAT treatment of grants, donations and subsidies. This note should be read in conjunction with the Consideration guidance note.

For businesses providing sponsorship, please see the Sponsorship guidance note. For public bodies, see the Local authorities, government and public bodies guidance note.

See VATSC53530 for information on the treatment of dried fodder.


This guidance note does not cover payments such as grant-in-aid which represent funding of public sector bodies from their parent central government departments for strategic projects such as infrastructure plans, as these payments are always outside the scope of VAT.

VATSC51620, VATSC51820, VATSC51840, VATSC51860; 2006/112/EC , Articles 2, 73; VATA 1994, ss 1, 4, 5

Generally, a grant is viewed as a freely given payment for which the recipient supplies no specific goods or services in return to the grantor or third party. As a result, the grant is not treated as a supply for VAT purposes.

A grant can be money that is given by the Government or other organisation to another organisation / body to carry out a specific activity or particular purpose. The National Audit Office describes a grant as “a permanent transfer of funding for a specific purpose and used in accordance with a set of terms and conditions”. HMRC considers that this is a reasonable definition; however, from a VAT perspective, the donor will need to ask himself whether or not the payment is ‘consideration for a supply’.

If the grantee provides goods / services in return for the payment received, then this is consideration for a supply and the payment is therefore within the scope of VAT. A genuine grant that is outside the scope of VAT could share some of the same characteristics as a supply for consideration, such as being funding for a specific purpose or governed by a

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