Accounting for a grant received that is outside the scope of VAT

We have received a grant from a European development fund that is outside the scope for VAT. Our local VAT inspector has advised that the receipt of funds should not default to sales. How do we record these funds without them showing as sales in the VAT return?

Find the deposit on the bank, click to tag and select Something else not on the list

Now post to Misc Income and enter a description e.g. “Grant funding”.

This will post the deposit directly to a nominal account and it will not appear on the VAT return.

Is grant revenue nature or not? Is it taxable? have a look at funders T&C before you decide to put this grant in P&L or balance sheet