5.1.5 Tax laws
Arts & Business (A&B) advocates the mutual benefits of partnership between the private sector and the arts. It runs a number of programmes helping to bring the two together and business investment incentive schemes in Scotland, Wales and Northern Ireland. A&B (http://www.ArtsandBusiness.org.uk) offers arts specific advice on the tax treatment of private sector support.
In relation to private sector finance, the British model has traditionally focused on the role of business in supporting the cultural sector, but several developments have encouraged a new view of the possibilities of increasing individual support for the arts. New models of donor involvement, known as venture philanthropy, have encouraged the Treasury to consider implementing more advantageous tax regimes, since tax planning has an obvious attraction for the individual donor. This new way of giving to charities took effect from April 2000 as part of the government plans "to get Britain giving". Following a review of Charity Tax Law, the Chancellor of the Exchequer proposed major simplifications and improvements to the treatment of gifts to charities including an introduction of a tax efficient way to donate gifts of shares. The changes were made in part to encourage private support, to complement the public money given to the arts, museums and heritage, and to increase the amount of money going to charities. Many cultural organisations in the UK have charitable status and are thus able to take advantage of these changes.
There are a number of schemes to encourage public-private partnerships using tax relief. For example, if a business temporarily seconds an employee to a charity or educational establishment, such as an arts organisation, the salary cost and other expenses which the employer would normally continue to pay will continue to be tax deductible. An Enterprise Investment Scheme was introduced by the government to help small companies raise money. It offers income and capital gains tax breaks to investors of at least GBP 1 000, though it is potentially high risk.
The entire landscape has changed in regard to tax support for film. A new version of the tax credit scheme came into law with the passing of the 2006 Finance Act. To qualify for tax relief a film needs to: be made by a UK film production company; be intended for theatrical release; pass the revised Schedule 1 to the Films Act 1985 (the cultural test for British films), be administered by the UK Film Council, or be made under one of the UK's film co-production treaties, and; have at least 25% of its budget incurred on UK expenditure. In order to pass the cultural test, a film maker needs to demonstrate that the project will have "British qualities" across four categories: A) Cultural content (setting, characters); B) Cultural contribution (heritage, diversity); C) Cultural hubs (photography, post-production); and D) Cultural practitioners (director, actors).
If all these criteria are met the film is eligible for tax relief. British films costing GBP 20 million or less are eligible for an additional tax deduction of 100% of qualifying UK expenditure and to surrender losses in exchange for a cash payment of 25%, amounting to a benefit worth at least 20% of qualifying production costs. Other British films will receive an additional deduction of 80% of qualifying UK expenditure and will be able to surrender losses in exchange for a cash payment of 20%, amounting to a benefit worth typically 16% of qualifying production costs. Film Tax Relief is offered on UK expenditure only. The definition of UK expenditure is "expenditure on goods or services that are used or consumed in the UK". Once a film is certified, relief is claimed by a company submitting its tax return - however many of those films would still be at an early stage and might not be claiming tax relief for another year or more. During the financial year 2007-08, HM Revenue & Customs estimate that they received approximately GBP 100 million of claims for the film tax credit.
Fiscal measures are essential to countering the market failures associated with film industries across the world, and the UK Film Council considered it was essential that the UK's suite of incentives preserved levels of inward investment and worked to promote domestic production. The previous government completed its review of film tax incentives in March 2006, and the industry has welcomed the new measures which will make the UK an attractive place to make films. The industry has reported that the new tax credit is working much more efficiently and effectively for inward investment and domestic UK film production.
Through the European Convention on Cinematographic co-production, films which are funded by the Northern Ireland Screen Commission, and that carry out either principle photography or post production in both Northern Ireland and the Republic of Ireland, can take advantage of both the Republic's Section 481 tax relief for film and the UK's film tax credit scheme (as long as they spend no more than 80% of their budget in one territory and no less that 25% of their budget in the UK and no less than 20% in the Republic of Ireland). However, due to both "use and consume" rules, producers can only receive the maximum benefit of one of the tax schemes; they can no longer enjoy the full benefits of both schemes.
The Acceptance in Lieu scheme, operating since 1947, allows a person who is liable to pay inheritance tax, capital transfer tax or estate duty to settle part, or all of the debt, by disposing of a work of art or other object to the Board of Inland Revenue for public ownership. To qualify for exemption, an object must be of national, scientific, historic or architectural interest. These are often antiques, works of art etc, and also archives. In 2006-7, the UK gained art works and heritage items to the value of GBP 25.3 million under the AIL scheme. It is managed on behalf of the government by the Museums, Libraries and Archives Council (MLA). Individuals offering objects under the Acceptance in Lieu Scheme have a legal right to remain anonymous; few choose to be named.
The book sector is specially treated for VAT purposes, being zero rated, as are some artist's supplies. In addition, since a European Court of Justice ruling in 2002, bodies administered on an "essentially voluntary" basis have been exempt from paying tax on admission charges - including theatres, museums, heritage and other cultural organisations. The clarification meant a number of organisations benefited from a significant tax rebate at that time.
Inland Revenue has ruled that grants and awards to artists are taxable. Creative people, such as writers, composers, playwrights etc, can arrange with the Inland Revenue authorities to have their tax spread over a period of years if they can demonstrate that their income fluctuates significantly as a result of spending more time some years on the creative process when their income is lower than normal. However, the Inland Revenue does regard "buying time" bursaries as tax free.
Since 2000, and under the provisions of the 1989 Gift Aid Act, non-profit organisations whose income was used wholly for heritage upkeep could claim Gift Aid tax relief on donations - worth an extra 28 pence for each GBP 1 donated. After a national consultation to improve the Gift Aid initiative in 2007, the government recently announced that charities could claim Gift Aid at the new basic rate of 20%, but they will also be entitled to a transitional relief worth 3p for every GBP 1 donation received under the scheme. This transitional relief, applicable from 6 April 2008 to 5 April 2011, aims to give time to charities to adapt to the new basic rate, so they can continue to receive 28 p per GBP 1 donated. Higher rate tax payers can claim the difference between the lower rate tax claimed by the recipient charity through Gift Aid and the higher rate tax they have actually paid. Other changes introduced to the Gift Aid scheme are to improve the HM Revenue & Customs audit processes to help reduce administrative burdens, as well as to encourage greater use of the scheme through new guides and training opportunities directed to the charity sector.
In December 2010 the new Coalition Government indicated that there will be a Treasury led review of tax incentives in 2011.