This guide looks at the treatment of funding in the accounts of recipient charities and voluntary organisations and considers how this might be different depending on whether you receive funding as grants or contracts. You may also receive funding which is a performance-related grant or a service level agreement.

The guide also looks at the difference in your position from a tax aspect as contracts may be a form of trading . A significant issue is the VAT treatment of contracts: because a contract may be business income, this may take your organisation into the scope of VAT and mean that you have to register for VAT. For VAT, it will not make a difference if the funding agreement is called a service level agreement if the substance of the arrangement is that it is a business transaction. The terms and the underlying nature of the transaction will determine how it should be treated for VAT. As such, you should take professional advice to determine the implications that a contract may have on your organisation. See our Introductory Overview on VAT for more information on VAT issues.