Do I Pay Tax on a Grant or Bursary? A Guide for Creatives

If you’re in the creative industries - whether that’s music, theatre, film, design, photography or online content - grants and bursaries can provide vital financial support. But there’s one thing many creatives aren’t sure about:

Do I need to pay tax on the money I’ve been awarded?

The answer isn’t always straightforward. While many grants are taxable, some may fall outside the scope of tax depending on their purpose, how they’re awarded and your personal circumstances. Let’s unpack it.

Grants from Arts Council England (and similar bodies)

This area deserves special attention.

Back in 1978, an agreement between the Arts Council of Great Britain and the Inland Revenue (now HMRC) established two categories of grants:

• Category A (Taxable): These are for specific projects, commissions, or professional expenses. If the money is to help you put on a show, create a body of work, or pay for business costs, it’s usually taxable as part of your trading income.

• Category B (Non-taxable): Known as “buying time” awards, these support the development of your personal skills without any direct link to a project. If you’re given time and space to grow as an artist without expected deliverables, this could be non-taxable.

⚠️ However, HMRC’s stance has evolved - particularly after the pandemic. Grants originally intended as personal development support were sometimes later deemed taxable because they effectively replaced lost revenue.

For example:
Arts Council England’s emergency COVID grants were ultimately treated as taxable income, as HMRC viewed them as a substitute for trading profits.

What About Bursaries and Scholarships?

Bursaries and scholarships can be exempt from tax if they meet the following conditions:

• You’re in full-time education (i.e. full-time instruction at a university, college, or similar institution)

• The award is not a reward for professional services or closely linked to your business activities

• The total amount doesn’t exceed £15,480 per year

Anything over that limit - or paid in connection with part-time study, creative commissions, or commercial work - may fall within the taxable net.

The Key Test: Is It Related to Your Profession?

HMRC’s central principle is this:

A grant or award is taxable if it arises as an incident in the exercise of your profession or vocation.

This doesn’t just apply to full-time creatives. If you’re a part-time musician, weekend artist, or occasional performer but the grant is linked to that activity, it may still be taxable.

How Do I Treat It in My Accounts?

If the grant is taxable:

• Sole traders should include it in the “turnover” or “other business income” section of their Self Assessment return

• Limited companies should include it as income on the company’s Corporation Tax return

• Keep a clear paper trail of what the grant was for and how it was spent

If the grant funded capital equipment:

• The grant is still taxable as income

• You may be able to claim capital allowances for the equipment

• BUT: HMRC may reduce the asset’s cost for capital allowance purposes by the amount of the grant to prevent “double relief”

What About VAT?

Most grants are outside the scope of VAT - you don’t charge VAT and you don’t reclaim VAT.

But there are exceptions. If the grant is in exchange for a service or deliverable (like a performance or report) HMRC may treat it as consideration for a supply, and VAT could apply if you’re VAT-registered.

This is a technical area - get advice if you’re unsure.

Examples Relevant to Creatives

Final Thoughts

When it comes to grants and bursaries, the tax position depends on the intention, context, and conditions of the award. HMRC’s general view is that if the funding supports or replaces business income, it’s probably taxable.

That said, there are exemptions - particularly for full-time students or for awards genuinely aimed at personal development, rather than professional output.

To stay on the right side of the rules (and avoid surprises), take the time to:

• Review the terms of your award

• Keep good records

• Speak to a tax adviser familiar with the creative sector

Got a grant or bursary and unsure how to treat it?

Get in touch - we’ll help you figure it out so you can focus on your creative endeavours.