What Counts as a grant? A simple guide for charities
One of the areas we are often asked about is Grants, both coming in and out. What counts as a grant, and what doesn’t! And how the treatments are different.
When your charity gives or receives money, it’s important to know whether it counts as a grant. It sounds simple, but the rules can be confusing - especially when words like “funding” or “bursary” get thrown in!
What is a grant?
A grant is money given to support a good cause - usually for a project or purpose that fits with the giver’s aims. They are classed as ‘non-exchange’ transactions.
There are two sides to grants:
- Grants received – money your charity gets from someone else.
- Grants paid out – money your charity gives to others.
Grants Received
A grant received is when your charity is given money to help it carry out its own work. You don’t have to pay it back, but you must use it for the purpose it was given.
For example:
- A local council gives your charity £2,000 to run a food bank.
- A trust gives £500 to support your mental health project.
These are grants received – it is income, and it’s recorded as money coming in to your charity.
Some grants have conditions - like sending reports or photos to show how you spent the money. Others are more flexible. Either way, it’s still a grant.
The key here is that the giver of the grant does not receive any benefit from giving that money, i.e. you are not providing a service to the donor or on behalf of them. If there is any exchange element, then it will be a contract and different rules apply.
Just because the grant giver asks for reports on the impact the money has made or where you’ve spent the money does not make it an exchange transaction.
The paperwork will need careful review to confirm – if in doubt ask your independent examiner/auditor as they’ll be able to help you and you know you’ll be treating it how they need it for the accounts.
Grants Paid Out
A grant paid out is when your charity gives money to another person or organisation to help them do work that supports your charity’s aims. You’re not buying anything - you’re helping them make a difference.
For example:
- Your charity gives £1,000 to another small charity to run a project for young carers.
- You give £200 to a local group to buy art materials for children in hospital.
That’s a grant paid out - money going out from your charity.
Even if you ask for reports or receipts, it’s still a grant as long as you’re not getting goods or services in return. If you are paying someone to deliver a service on your behalf, that’s not a grant; it’s a payment for services. You need to be very clear on this.
What about bursaries?
A bursary is a special type of grant. It’s money your charity gives directly to a person to help them do something that fits with your aims - often to help them study, train, or take part in an activity they couldn’t afford otherwise.
For example:
- You give a young person £300 to buy equipment for their college course.
- You pay £150 for a child to attend a music summer school.
These are grants paid out, just to individuals instead of organisations.
You might set rules - like asking them to prove they used the bursary properly - but it’s still a grant because you’re supporting their opportunity, not buying a service for your charity.
Why it matters
Getting this right keeps your charity’s accounts clear and in line with reporting regulations:
- Grants received go under income.
- (Contracts are treated very differently)
- Grants paid out (including bursaries) go under expenditure.
Charity examiners and auditors look at this carefully, because it shows how your charity helps others and how it’s funded. If you are making grants to others, whether as your main purpose or not, this is reported to the Charity Commission annually during the online Annual Return process so you need to be able to identify them.
It also helps funders and supporters see exactly where your money goes - and how it’s making a difference.
Final thought
Here’s an easy way to remember it:
- If grant money comes in to help you do your work - it’s a grant received.
- If grant money goes out to help someone else do work that fits your aims - it’s a grant paid out.
- And if that money helps an individual with training, education, or opportunities - that’s a bursary, which still counts as a grant paid out.
