For those who may not have seen the details on the support available, information is available via the following link:
HMRC have not spelt out the VAT implications in any of their announcements. However, the basic principles of supply and consideration can be expected to apply. VAT is a tax on supplies for consideration, so where a grant is made, and nothing is expected to be done in return it will not be subject to VAT.
HMRC’s approach is set out in the Supply and Consideration manual at VATSC06312 as follows:
“When deciding whether a payment is within the scope of VAT you must treat each agreement on its own merits and apply the basic rules of VAT to it, as set out in the legislation VATSC06313.
For a transaction to fall within the scope of VAT there must always be a supply, a consideration and a direct link between the two. A payment is not consideration for a supply if one of these factors is missing.
The following points will help in deciding whether a payment is consideration for a supply for VAT purposes:
•Does the grantor receive anything in return for the payment?
•Are there any conditions attached to the payment that go beyond merely having to mention it in account statements?
•What will the payments be used for?
•If the funder does not benefit directly, does any third party receive a benefit?
•Is there a contract and what are the terms and conditions?
Grant funding can be a complex area in some circumstances as it is common for funding bodies to use the term ‘Grant’ when, in reality, it is payment for a contractual obligation. However, the business support funding being made available to mitigate the impact of Covid-19 does not fall into this category and will be outside the scope of VAT
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