Grant Income and Corporation Tax for UK Limited Companies

Grant income is treated as taxable trading income for UK limited companies in most cases — including Community Interest Companies (CICs). This guide explains how grant income is taxed and how to enter it correctly in TinyTax.

Is Grant Income Taxable?

Generally, yes. When a UK limited company (including a CIC, CIO, or registered society) receives a grant, HMRC treats it as taxable income unless a specific exemption applies. There is no blanket exemption for grants received by CICs or community and social enterprises.

The tax treatment depends on the nature of the grant:

Grant type	Tax treatment
Revenue grant (funding operations, salaries, running costs)	Taxable income in the year received
Capital grant (funding the purchase of a specific asset)	More complex — seek professional advice

Most small grants for community projects are revenue grants and are taxable.

Restricted Grants and Deferred Income

A restricted grant is one awarded for a specific purpose, where the qualifying activity has not yet been completed. The question of when to recognise it as income is an accounting decision — but it directly affects your CT600 tax.

Two approaches, two different tax outcomes:

Approach	P&L	Balance sheet	CT600 tax
Grant recognised as income this year (activity complete, conditions met)	Include in turnover or other income	Not needed as deferred income	Tax applies on profit including grant
Grant genuinely deferred (activity not yet performed, conditions not yet met)	Do not include in income	Enter full grant in Accruals and deferred income (creditors)	No tax on grant — it is not income yet

The deferred income field on the balance sheet does NOT reduce CT600 tax. Deferred income is a creditor — a liability showing money received but not yet earned. If you enter the grant as income in the P&L and also as deferred income on the balance sheet, the CT600 will still calculate tax on the full P&L profit.

To achieve £0 tax on a deferred grant:

Remove the grant amount from your P&L income — do not include it in turnover or other income
Enter the full grant amount in the Accruals and deferred income field in the creditors section of the balance sheet
Your P&L profit will not include the grant, so CT600 tax will be calculated on the lower figure

Why does the profit appear in shareholders' funds? When the P&L shows a profit, it flows automatically into retained earnings, shown as "shareholders' funds" in TinyTax. This is normal accounting behaviour — it is not an error. For a CIC, the equity section may carry this label even though there are no traditional shareholders; it simply represents the company's accumulated surplus.

If you are unsure whether your restricted grant should be recognised as income this year, confirm with your accountant — the timing of grant recognition is an accounting judgement that affects both your Companies House accounts and your CT600 tax liability.

How TinyTax Handles Grant Income

Enter grant income as part of your turnover or other income in the P&L section. TinyTax calculates corporation tax on your net profit (income minus allowable expenses). If your taxable profit is above £0, corporation tax is owed — typically at 19% for profits up to £50,000.

If you believe a specific grant is tax-exempt (because of advice from a tax professional or the specific terms of the grant programme), you can omit it from your income figures. TinyTax calculates tax based entirely on the figures you enter.

Capital Allowances for Equipment Purchased With Grant Money

If you used grant funds to buy equipment or assets (tools, machinery, fixtures), those assets may qualify for the Annual Investment Allowance (AIA), which gives 100% first-year tax relief.

⚠ Only enter an asset cost under Capital Allowances if you have not already included it as an expense in your P&L. Entering it in both places double-counts the deduction.

Already entered as an expense → already reducing your profit; no separate capital allowance needed
Capitalised the asset (not in expenses) → enter it under Capital Allowances in TinyTax

Do CICs Pay Corporation Tax?

Yes. A Community Interest Company is a limited company and is subject to UK corporation tax in the same way as any other company. The CIC structure is a legal designation, not a tax exemption. If your CIC has taxable profits, it must file a CT600 and pay corporation tax.

Seeking Professional Advice

If you are unsure whether your specific grant is taxable, a chartered accountant or tax adviser with experience in CICs or the charity sector can confirm the correct treatment for your situation. HMRC also publishes guidance on grant income for businesses.

Common Questions

Our grant was for a community project — is it still taxable?

Most likely yes, unless the grant programme has a specific HMRC-approved tax status. Grants from lottery bodies, local authorities, or government programmes are generally taxable for limited companies.

We spent all the grant money on the project. Do we still owe tax?

Yes, if income exceeds allowable expenses. Corporation tax is charged on net profit. If grant income was £1,750 and your expenses were £960, your taxable profit is approximately £790 and you owe around £150 in corporation tax at the 19% small profits rate.

What if we made a loss?

If your allowable expenses exceed your income, you have made a loss and owe no corporation tax for the period. You can carry the loss forward to offset future profits.

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