Supply and consideration ― grants and subsidies

Produced by Tolley
Supply and consideration ― grants and subsidies

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

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 scope of VAT.

Another illustrative example

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