Supply and consideration ― grants and subsidies

Produced by Tolley

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

  • Supply and consideration ― grants and subsidies
  • Is a grant consideration for a supply?
  • Indicators of whether a grant is consideration for a supply
  • Grant-in-aid
  • Is a subsidy consideration for a supply?
  • Global subsidies
  • Subsidies directly linked to the price of a supply
  • Practical points ― grants and subsidies

Supply and consideration ― grants and subsidies

This guidance note looks at grants and subsidies for VAT purposes. In particular, it considers when a payment will be consideration for a supply and therefore potentially within the scope of VAT.

For an overview of supply and consideration generally, see the Supply and consideration ― overview guidance note.

For in-depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.104.

Is a grant consideration for a supply?

It is often assumed that grants are not consideration for a supply and they are therefore outside the scope of VAT. However, the position is more complex than this. HMRC will not see the fact that something described as a ‘grant’ is determinative of its VAT status. Some grants will be outside the scope of VAT, whilst others will be within the scope of VAT.

At a basic level, it is necessary to look at the substance of the ‘grant’ on a case-by-case basis. If the grant is freely given and nothing is given in return, then this is not likely to be seen as consideration for a supply and it will therefore be outside the scope of VAT. However, this will not always be clear. Often a payment described as a grant may actually be a contract for services (or goods) and will therefore be a supply for consideration. The VAT liability of the supply will depend on the nature of what is being supplied (and sometimes by whom and to whom it is being supplied).

A good example can be seen in a case in which a taxpayer was responsible for promoting the tourist industry of the Netherlands. The taxpayer received what was described as a ‘grant’ from the Dutch government. The VAT Tribunal held that there was a direct link between the grant and the supplies made to the Dutch government by the taxpayer. Therefore, the taxpayer was actually making taxable supplies within the

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