Your guide to accounting for grant money you’ve received

A business grant can be enormously helpful for a small business, but you must record it carefully, just like any other source of income. Accounting for grant money is slightly different from accounting for other similar investments, and business owners should be aware of those differences. 

This article will act as a guide on accounting for grant money you receive. We’ll provide a variety of advice, including:

• Accounting for grant money: A step-by-step guide
• Business grants you can apply for
• How Countingup can help with accounting for grant money

The first step in properly accounting for grant money is to make sure the income you’ve received is definitely grant money. Most grant money is an investment from a government department and something you specifically apply for. There are income sources matching those descriptions that aren’t actually grants, so you need to be careful. 

The key identifying feature for grant money is that you do not have to provide anything in return. An organisation that gives a grant cannot ask for goods, services, or financial reimbursements. If they do, they cannot call their investment a grant. You might need to keep the organisation up-to-date on what you use their grant for, but they can’t ask for anything beyond this. 

One example of a grant your business might have received recently is the SEISS grant, also called the Self-Employment Support Scheme. SEISS was a government grant given to sole traders whose turnover was lower due to COVID-19, but applications closed in September 2021. As the government gave the money without expecting to receive something in return, SEISS is definitely a grant.

Most grants are for a specific purpose — you might receive a grant to buy equipment or improve your marketing. You’ll need to list a grant differently in your financial documents depending on what it’s for. 

The SEISS grant was to supplement companies’ income, so simply list it as income in your profit and loss statement. Finding single transactions like SEISS so you can record them can be time-consuming if you don’t have a separate business account for your company finances, and we definitely recommend using one if you’re running your own business,Countingup offers a great value two-in-one business account with built-in accounting software.

If you receive a grant that’s for a specific purchase or relates to a specific expense (e.g. equipment, property, new marketing strategies), but you’ve not yet made that purchase, you would list it as deferred income. 

This is income that goes onto your balance sheet as something your business owns (in other words, an asset), but you don’t put it on your profit and loss statement yet. This is because you’ve received the money, but it’s to cover a specific purchase, so it’s held in reserve until you make that purchase. Then, you would list the expense and the grant together on your profit and loss statement.

If your company needs extra funds, but you can’t get a loan and you’re struggling to find the right investors, you might consider applying for a business grant. There are tons of different grants available, both from private organisations and the government. 

An excellent resource for finding a suitable grant for your business is the Business Finance Support page on the gov.uk website, but we’ve also listed a few grants below you may be interested in.

To get a small business grant, you’ll need to have a solid business plan and a well-written application. You’ll also need to know the focus of the grant  — research the organisation that gives out the grant, consider what they want the grant money to be spent on.  With the National Lottery Heritage Fund, for instance, preference is given to businesses that are likely to have a positive impact on their local community. 

If your business has an educational aspect or relates to preserving a local landmark, consider applying for the National Lottery Heritage Fund.

If your company operates in a rural area and you struggle to maintain good-quality internet, consider applying for the Gigabit Broadband Voucher Scheme. This government grant can provide up to £3,500 to secure high-speed broadband for rural businesses.

Innovate UK is another government grant scheme, but this focuses on innovative enterprise ideas. They provide a huge variety of funding opportunities throughout the year, which usually centre around a particular industry or type of product. 

If you feel your company is particularly inventive for its sector or is a very original business idea, look into what Innovate UK can offer.

Countingup offers a great business current account, which is especially good for tracking grant money because of its real-time profit and loss reporting.

A profit and loss statement is a financial document that shows how much money your company has made and lost over a set period. Grants you receive will always end up on the profit and loss statement, although they may stay on your balance sheet for some time as deferred income. 

The Countingup app shows a real-time view of your profits and losses, updating as you make transactions on the business account. This means you’ll be able to see and record any grants as soon as they go onto your account. 

Countingup is the business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Find out more here.