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Treatment of commercial grant

Treatment of commercial grant

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Partnership received a grant of £30k from a neighbouring business for allowing a connecting door to be opened between their respective properties (because it would drive customer to the business providing the grant)

The condition was that my client carried out certain improvements to their property (not related to the opening which was paid for by the grantor).

In the event only about £20k was spent on some property alterations including some lighting and fixtures and equipment. There was no amount specified in the agreement so there will be no repayment of the surplus).

So:

As the invoice for the work was very brief and contained no apportionment and the client cannot provide a breakdown I will have to apportion between : Alterations (walls etc), integral fixtures (lighting etc) and plant (desks etc)

It's understood that the grant needs to be treated as deferred income and credited to match expenditure. Therefore assuming I apportion as follows:

Alterations to leasehold £16k (written off over remainder of lease (10 years)

Plant and equipment £4k to be written off at 20% wdv

I can see how £20k of the grant will be credited in years to come but what of the £10k surplus?

Also I assume the amount credited against the property alterations will not be taxable but the amount credited in respect of the P&M will be (or do I not claim cap allowances and deduct the ensuing grant in the tax comp).

Again what about the extra £10k?

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By WhichTyler
05th Jan 2016 14:28

Looks to me...

... like the £10k balance is an 'undifferentiated receipt' and treated as revenue. 

 

http://www.hmrc.gov.uk/manuals/bimmanual/bim40451.htm refers

Unusual for a 'grant' to come from a private body though, so you may want to check the underlying rationale (and the contract)

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