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Arts Council Award

Arts Council Award

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Client has received an Arts Council Grant/Award. I'm happy that the Award is taxable inasmuch as it has arisen directly as a result of his trade. I'm also reasonably happy that it is not subject to VAT i.e. outside of the scope of VAT based upon HMRC's own guidelines.

What I'm struggling with is the impact of input tax which, instinct tells me, should not be reclaimed. I'm familiar with partial exemption rules but have never had to consider input tax in the context of outside of the scope income.

Is the correct treatment merely to disallow any input tax that relates to the job which has given rise to the grant/award?

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15th Mar 2016 19:29

Business - Non-Business

The income is probably to be treated as 'non business' for VAT purposes. The approach is the same as for Partial Exemption. So you will be required to adjust input tax. But, if you use a simple outputs-based method you may find you lose some residual input tax. It will be worth considering another method of calculation.

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16th Mar 2016 08:32

Thanks Les

So the alternative would be to identify specific invoices that relate to the income and disallow (in this case they should be easily identifiable)?

 

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16th Mar 2016 08:42

Business - Non-Business

Correct, but you will also have the issue of 'residual input tax,' which covers business overheads. This is where a special method is an option to be considered.

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