The arts and culture sector is critical to the UK, not just in terms of the financial aspects and the sheer number of people that it employs, but also the benefits reaped by society from its diverse programmes and events, from performing arts to museums and public spaces. The current environment has seen many of these venues forced to close, and whilst additional funding has been announced by the Arts Council, it falls far short of the lost revenue that organisations will have suffered.
An announcement and release of lockdown constraints for leisure and similar facilities from 4 July would be welcome, but the challenging logistics and health requirements will mean that many of these spaces are unlikely to be open by then.
The tax reliefs for theatres, museums and orchestras are now well established, but have you made the most of these?
Most arts organisations will have a March year-end and will have separate trading subsidiaries to transact this work. If so, prioritise subsidiary audits in order to bring forward the tax computation submissions. The sooner the tax computation is submitted, the sooner you will receive that injection of much needed cash.
Where the claim is made through the charity, can you still carry out the audit so that the claim can be made as quickly as possible?
Charitable organisations that have separate trading subsidiaries need to think carefully about ongoing cross charges/management charges. Profits made to 31 March will need to be paid across under Gift Aid by 31 December (ie within nine months of the year end). If the venues are closed and you continue to have charges through these entities, it will come from the subsidiary’s distributable reserves and may limit the ability of the company to make that cash payment. If the plans going forward are not to open this year, or its unlikely that the subsidiary will make further profits prior to 31 December, you may end up having a tax liability for the profits that are not Gift Aided to the charity. In this situation, you should consider whether there is a need to make cross charges or management charges to the subsidiary at all.
Where the trade of the subsidiary could be considered to be a charitable trade, were it to be carried out directly by the charity, then there may be more flexibility around recharges or, indeed, the ability to financially support the subsidiary through this difficult period via grants for example. In addition, the subsidiary may wish to consider the order in which it prioritises payment of inter-company debt or other balances in order to enable the retention of cash to facilitate Gift Aid payments to be made.
For those organisations that are partially exempt, the mix of your income streams in the current climate may lead to a change in the ratio that you are able to reclaim, and it is likely that this ratio will be reduced. However, there are opportunities within the VAT legislation to gain a cash flow advantage by adopting last year’s partial exemption rate for the current year. Eventually, the annual adjustment calculation will correct the figure for the year you are now in, but this approach must be adopted for the first quarter return.
Many organisations will have valuable intellectual property in the form of video or digital media, performances or educational content. Is there an opportunity in this period to leverage that material to generate additional revenue?
Arts and culture is a visual and “in-person” experience, but is there an opportunity for the sector to adapt or enhance its offerings (especially their educational content)? For example, music tutorials are taking place through digital platforms. Opportunities are also being developed to offer an entire curriculum remotely not just in the UK, but also international audiences unwilling or unable to travel to the UK. If you can deliver your work remotely to a wider international audience, you are able to generate additional revenue and meet new demands.
Developing new initiatives and finding new opportunities to generate income are already hot topics. Whatever you do, check your governing document first and ensure that you have the power and ability to carry out that activity within your current objects. Consider broadening your objects to allow you to do a wider range of activities.
There are opportunities to broaden the reach of what the sector can deliver, to innovate and potentially reach a much wider audience. It is important to take advantage of those reliefs that are available to you, get that money in as soon as possible and consider the implications of your current structure and whether it continues to work effectively for you.
Richard Weaver is partner and head of charities and not-for-profit at haysmacintyre