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 still be tax deductible.
Theatre tax relief was introduced in 2014 enabling theatre producing organisations (who must be registered companies) to claim back up to 25% of their production costs for new theatrical presentations. Theatre tax relief amounted to GB£ 78 million in 2018/19. Similar tax relief schemes have been introduced by government for orchestras (defined as any orchestra with 12 or more instrumentalists) since 2016 and, since 2017/18, for museums and galleries wanting to research and curate new exhibitions and display their collections to broader audiences. Video game development has also been eligible for tax relief since 2014. The tax relief enables eligible organisations to deduct an additional percentage of qualifying expenditure when calculating costs for tax purposes.
A revised tax credit scheme for film was introduced under the Finance Act 2006. To qualify for tax relief a film needs to be: made by a UK film production company; intended for theatrical release; pass the revised Schedule 1 to the Films Act 1985 (the cultural test for British films), 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. 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 GB£ 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.
The British Film Institute Statistical Yearbook 2018 revealed that tax relief had benefitted the audiovisual sector (including film, high-end TV and video games) significantly. It indicated that in 2016 GB£ 632 million in tax relief seeded GB£ 3.16 billion in direct production spending and the generation of 137,000 full-time equivalent jobs. Since it was first introduced in 2007 film tax relief had supported GB£ 11.6 billion investment in 1,680 British films in the period up to and including 2017 and the film sector secured GB£ 1.2 billion in tax relief.
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. It is managed on behalf of the government by Arts Council England. Individuals offering objects under the Acceptance in Lieu Scheme have a legal right to remain anonymous; few choose to be named.
The printed book sector is specially treated for VAT purposes, being zero rated, as are some artist’s supplies. Publications in digital format are subject to 20% VAT, but the new Government has indicted this will be abolished at the end of 2020. 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.
Inland Revenue has ruled that grants and awards to artists are taxable. Creative people, such as writers, composers and playwrights, 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 Gift Aid Act 1989, non-profit cultural organisations registered as charities could claim Gift Aid tax relief on donations worth an extra 5 pence for each GB£ 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.
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