Grants for Heat Pumps - Treatment in the Accounts

As the world moves towards greener energy solutions, the Boiler Upgrade Scheme (BUS) provides essential support for installing heat pumps and biomass boilers in homes and non-domestic buildings across England and Wales. This initiative offers substantial capital grants to encourage the adoption of environmentally friendly heating systems, helping both property owners and installers transition to sustainable energy sources. In this blog, we'll explore the specifics of the BUS grants, the application process, and the correct accounting treatment for these grants.

Understanding the Boiler Upgrade Scheme (BUS)

The BUS offers varying grant values based on the type of heating system installed:

Air Source Heat Pump (ASHPs): £7,500

Ground Source Heat Pump (GSHPs): £7,000

Biomass Boilers: £5,000

To qualify for these grants, installers must be MCS accredited and certified to install heat pumps and biomass boilers. For more information on accreditation, visit MCS Certified.

The Application Process

Before applying for a grant, installers must provide the property owner with a detailed quote. The values submitted or invoiced during the application process must match the issued quote, as discrepancies may be verified. The quote must include:

The total quote amount, including VAT (note the boilers and heat pumps come under VAT notice 708/6 – therefore are zero rated), before deducting the grant. This should encompass all labour and ancillary costs.
The total cost of the heat pump or biomass boiler, excluding the grant.
A quote reference number and date of issue.

Once these details are finalised, installers can apply for a voucher to claim the grant funding.

Accounting for Government Grants

Proper accounting for government grants is vital to ensure compliance and accurate financial reporting. For installers, BUS grants are classified as revenue-based grants, which need to be recognized in the profit and loss (P&L) account in the same period as the related expenditure.

Key Points to Remember:

If the grant is received before incurring the related costs, it must be recognised in the P&L account when the expenditure occurs.
For grants received for past costs, the grant should be directly added to the P&L on the receipt date.
Grant funds can be presented as a separate income line item under "other income" or deducted from the relevant expense.
It is recommended to code any grant receipts as a "receive money" transaction to "other revenue" or create a separate revenue nominal named "income from government grants."

Accounting Steps:

Before Costs Incurred:

Code the grant amount due to accrued income (balance sheet).
Upon purchasing the heat pump/boiler, code the expense to "Cost of Sales."
Post a journal to move the grant revenue from accruals (BS) to other revenue (P&L).
Example Journal Entry: Cr. Other Revenue, Dr. Accruals.

After Costs Incurred:

Directly add the grant to the P&L on the receipt date.

For detailed guidance on the Boiler Upgrade Scheme, refer to the BUS Guidance for Installers. For information on the tax and accounting treatment of grants, visit VAT on Energy-Saving Materials and Heating Equipment, Accounting for Government Assistance under FRS 102:24 and FRS 105, and Accounting for Government Grants – IAS 20.

Understanding and properly accounting for BUS grants can be complex, but it's important for compliance and financial accuracy. If you need assistance with the application process or accounting treatment for these grants, don't hesitate to get in touch with us. Our team at Together We Count are specialised bookkeepers and accountants for the plumbing and heating industry. We are here to help you navigate the accounting and tax side of the BUS grants to ensure your business maximises the benefits of the Boiler Upgrade Scheme.

Contact us today at info@togetherwecount.co.uk to get expert advice tailored to your needs!