Other operating income is the profit and loss account line for income that arises from a company’s operations but is not turnover, because it does not come from supplying the goods or services the business exists to provide. Typical examples are government grants, rent from surplus property, and insurance recoveries and other compensation. Interest and investment income have their own lines further down, and gains on selling fixed assets are never turnover.
Where does the line sit in the accounts?
In Format 1 of the statutory profit and loss account, other operating income is item 6. It comes after turnover, cost of sales, gross profit, distribution costs and administrative expenses, and before income from shares in group undertakings, participating interests and other investments, and other interest receivable. In Format 2, which analyses costs by nature, it is item 4, straight after turnover, change in stocks and own work capitalised. The line appears in the same position in both the small company formats (Schedule 1 to SI 2008/409) and the large and medium company formats (Schedule 1 to SI 2008/410). The micro entity format has a broader item B, “Other income”.
Because it sits above the investment and interest lines, other operating income counts towards operating profit as most accounts present it. The two formats are compared in profit and loss account formats.
Where is the line between turnover and other operating income?
Section 474 of the Companies Act 2006 defines turnover as the amounts derived from the provision of goods and services, after deducting trade discounts, VAT and other taxes based on those amounts. FRS 102 defines revenue as income arising in the course of an entity’s ordinary activities, and Section 23 deals with revenue from contracts with customers, a customer being a party that has contracted to obtain goods or services that are an output of the entity’s ordinary activities.
The practical question is therefore: is this income from what the company is in business to supply? If yes, it is turnover. If it is income from operations that is incidental to that main activity, it is other operating income. The same receipt can fall either side depending on the business:
| Receipt | Usually turnover for | Usually other operating income for |
|---|---|---|
| Rent | A property investment or letting company | A manufacturer subletting part of its unit |
| Management charges | A company whose business is providing management services | A trading company recharging costs to a sister company |
| Commission | An agent or broker | A retailer earning occasional referral fees |
Getting this right affects more than presentation. Turnover is one of the size criteria in section 382 for qualifying as a small company, so treating grants or rent as turnover can push a company towards a larger size band.
How are government grants presented?
Grants are not consideration from customers, so they are not turnover. FRS 102 Section 24 says a grant is recognised only when there is reasonable assurance that the company will comply with the conditions and the grant will be received (paragraph 24.3A), and allows a choice, class by class, between the performance model and the accrual model (paragraph 24.4). Under either model the grant is recognised “in income”: under the accrual model, revenue grants on a systematic basis over the periods in which the related costs are recognised (paragraph 24.5D), and capital grants over the useful life of the asset (paragraph 24.5F).
Section 24 does not name the profit and loss line, and other operating income is the usual home. Netting a grant off the expense it funds is harder to justify, because paragraph 8 of Schedule 1 to both sets of regulations prohibits setting off income against expenditure. Where part of a capital grant is deferred, paragraph 24.5G requires it to be shown as deferred income, not deducted from the asset. Paragraph 24.6 requires disclosure of the accounting policy, the nature and extent of grants recognised, unfulfilled conditions and other forms of government assistance. The models are explained in FRS 102 Section 24: government grants, and the tax side in are business grants taxable.
Where does rent and other property income go?
For a company that is not in the letting business, rent from surplus space is the classic other operating income item. FRS 102 paragraph 20.106 requires a lessor to recognise operating lease payments as income on a straight line basis unless another systematic basis is more representative, or the payments are structured to rise with expected general inflation. A rent free period at the start of a sublease is therefore spread across the lease term rather than leaving the first months with no income. Paragraph 20.116(b) requires a lessor to disclose its operating lease income.
Service charges recovered from a subtenant usually follow the rent. Income from licences for parking spaces, storage or telecoms equipment on the company’s premises is treated in the same way when it is incidental to the main business.
How are insurance recoveries treated?
Insurance claims raise two questions: when to recognise the money, and where to show it.
- Damaged or lost assets. FRS 102 paragraph 17.25 requires compensation from third parties for property, plant and equipment that was impaired, lost or given up to be included in profit or loss only when it is virtually certain. The impairment and the recovery are separate events, so the write down is recognised when it happens and the recovery when it becomes virtually certain, often in a later period.
- Reimbursed provisions. Under paragraph 21.9, where an insurer is expected to meet a liability the company has provided for, the reimbursement is recognised as a separate asset only when virtually certain, and is not offset against the provision on the balance sheet. In the profit and loss account the expense may be presented net of the reimbursement.
- Business interruption. Compensation for lost profits is not from customers, so it is not turnover. Presenting it as other operating income keeps turnover comparable with other years.
The bookkeeping for a claim is covered in recording an insurance payout.
What does not belong in other operating income?
- Interest. Bank and loan interest received goes in other interest receivable and similar income.
- Dividends and investment returns. These go in the lines for income from shares in group undertakings, participating interests and other fixed asset investments.
- Gains on selling fixed assets. FRS 102 paragraph 17.28 requires the gain or loss on derecognising property, plant and equipment to be recognised in profit or loss and prohibits classifying such gains as revenue. They are commonly shown within other operating income, or netted within the expense line that carries depreciation, with material amounts disclosed.
- Sales of goods or services to customers. Small or occasional sales of the company’s own products are still turnover.
Paragraph 5.9A of FRS 102 requires material items of income and expense to have their nature and amount disclosed separately, either on the face of the profit and loss account or in the notes. A note analysing other operating income into grants, rent and insurance recoveries meets that requirement and helps readers.
What does it look like in a set of accounts?
Illustration only. A manufacturer with sales of £900,000 receives a £20,000 revenue grant for apprentice wages, £12,000 rent from subletting part of its unit and an £8,000 insurance settlement for damaged machinery that has become virtually certain.
| Format 1 line | Amount |
|---|---|
| Turnover | £900,000 |
| Cost of sales | (£600,000) |
| Gross profit | £300,000 |
| Administrative expenses | (£250,000) |
| Other operating income | £40,000 |
| Operating profit | £90,000 |
The note to the accounts shows the £40,000 as grant income £20,000, rent receivable £12,000 and insurance recoveries £8,000. Turnover stays at the £900,000 earned from customers.
What mistakes come up?
- Putting grants or furlough style support into turnover, or netting them against wages without considering the offset rule.
- Recognising an insurance recovery when the claim is submitted rather than when it is virtually certain.
- Treating rent as turnover for a business that does not let property as its main activity, or the reverse for a property company.
- Including bank interest or dividends in other operating income.
- Showing a large balance with no note explaining what it contains.
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- The housing SORP for registered providers
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- Deferred income explained
- Accounting for R&D tax credits and the expenditure credit
- Lessor accounting under FRS 102
Sources
- legislation.gov.uk: SI 2008/410, schedule 1
- legislation.gov.uk: SI 2008/409, schedule 1
- legislation.gov.uk: Act 2006 c. 46, section 474
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- legislation.gov.uk: Act 2006 c. 46, section 382
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.