My client is a limited company, and took on an apprentice last December through an agreement with a training company. My client has received grant funding towards the apprentice's wages of £1500, and I have no idea where to post it to! I thought perhaps 4900 Miscellaneous Income, but not sure if thats right. Also should it be T9 for outside scope of vat?
A few ways to approach this, you could post the receipt against the same nominal that you posted the salary to thereby reducing the salary expense or you could post it to other income or create a grant income nominal code.
Grant income is generally outside the scope for VAT purposes, see here http://www.hmrc.gov.uk/charities/vat/income.htm#2
Hi Kay, thanks for that! I currently post his salary to 7000 Gross Wages, then 2220 Net Wages when I make the payment, so I am assuming I would do a bank receipt posted against n/c 7000 rather than 2220? Or have I got that completely wrong? Thanks again
I would be inclined to post the income to miscellaneous income n/c 4900 rather than offset against wages cost n/c 7000 as old accountant rule is that you shouldn't net income against costs.
Expect will be T9 and therefore outside the scope of VAT. Grants generally are.
That method wouldn't be my first choice. Without knowing more I couldn't advise you do that, I was merely giving you the options and I will need to make that clearer in any future posts serves me right for posting after a 16 hour day!
To be safe I'd create a grant income code and post it there.
I have had grants which the revenue have deemed business and therefore taxable but generally they are few and far between, I doubt this particular type of grant would fall in that category though.
I'm pointing it out as usually the devil is in the detail and just because the document has the word grant on the cover doesn't necessarily make it one. One client I worked with had to go back and issue VAT invoices on a grant which luckily no one queried - don't you just love the vagaries of indirect taxation.
the truth is though that in some instances both suggestions given above can be considered correct. But where Kay's is sometimes correct, Marks always is.
Read on and I will explain.
SSAP4 (nder UK GAAP) allows income / revenue based grants to be recognised as either a credit in the income statement OR offset against the related expenditure. There are advocates of both approaches (personally I too would go down the miscellaneous income route but that does not make the alternate presentation wrong).
The key is that until the conditions of receipt are met without recourse the grant is in truth a liability.
For example, what happens if the apprentice is fired within the probationary period? Does the entity still have a right to the full amount of the grant? a proportion of it? Was the grant really for the wages or for the overheads of taking on a new employee and it is simply chosen to alocate it against the wages?
The grant must be recognised in the income statement by reference to the state of completion of the expenditure to which it relates.
That line seems to make more sense when contructing something but it is no less true of revenue expenditure with recourse.
As either presentation of the Grant could be correct (but see below for when it is not) then the overriding factor in this is consistency of application. For example, if you start by offsetting you cannot then switch to revenue recognition.
Now onto the issue with the offsetting option...
Whilst both SSAP4 (UKGAAP) and IAS20 (IFRS) allow offsetting of revenue (as well as capital based) grants such would only be applicable to unincorporated entities as the companies act does not permit such.
So, in conclusion I would always favour Marks approach of seperate presentation on the face of the financial statements rather than only disclosure in the notes as would be required under the alternate presentation.
As for the tax issue, it makes no odds whether it is increased income or decreased expenditure, the bottom line should remain the same.
As this is a limited company that we are talking about here unless anyone can see a flaw in my arguement I believe that Marks approach should be adopted in this instance.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Many thanks for all your comments. Shaun, your explanation makes sense in terms of potential of sacking etc.... So, I will follow Mark's advice (however thank you Kay for your input) and post it as misc income, and T9. The books will go to my client's accountant at year-end anyway, but nice to be able to post it correctly in the first instance.
I would go with Mark's advice, coding to 4900 and T9 - the most important part being to include details of the grant source, when you post. Your accountant will always review what is in the misc income code, and they can move it for the accounts presentation, if they want to.
I would go with Mark's advice, coding to 4900 and T9 - the most important part being to include details of the grant source, when you post. Your accountant will always review what is in the misc income code, and they can move it for the accounts presentation, if they want to.
If you read both of my posts you would see that I actually agreed with you although I would probably create a grant income code. At no time did I advocate offsetting I merely gave it as one of three options in my first post, Gill then picked out the offsetting option and asked me about the nominals but I'd gone to bed then Mark followed up. I then clarified my comment this morning - very early!
As for the VAT on grants I was merely making conversation as I find it interesting.
I'm well aware of SSAP4 and IAS20 since I live and breathe it every day.
I'm sorry if my flippant option caused so much work for everyone but I did clarify prior to all this being posted.
notice that I wasn't saying that you were wrong, I was just giving a bit more meat behind the discussion as its nice when posters know the detail of why things are as they are.
Never said that anyone didn't know the standards. They're not exactly kept secreted away and I think that everyone that has been through at least AAT knows of them.
Your original answers were great but I think when posting on here one needs to be aware though that many of the visitors are not (or not yet) accountants and discussions such as this end up becoming reference points where the more detail that we include the more useful it becomes.
My appologies if you misconstrued anything above as an attack on yourself as such was not at all as intended and if you reread assuming that stance you will see that there was no malicious intent or accussation of any lack of knowledge on your part behind my post.
kindest regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
