What is Museums and Galleries Tax Relief?
The museums and galleries tax relief is a new relief which is available to the organizations from 1st April 2017 and it is designed to appreciate and encourage the unique cultural value adds to the UK culture and thus encourage greater and more diverse exhibitions and thus aim to support the creative industries. Museums and Galleries Tax Relief (MGTR) is majorly known as Museums and Galleries Exhibition Tax Relief, also called at ETR.
However not all museums and galleries can avail this relief and only those who facilitates exhibitions, whether permanent, temporary or touring can reclaim some of the cost which they have incurred in putting on the exhibitions. So with this initiative, the United Kingdom government gives a platform to a broad range of museums and galleries to gain financial assistance and thus develop and promote new exhibitions.
Who Can Claim Exhibitions Tax Relief?
Museum and Gallery Exhibition Tax Relief is an initiative which is introduced by the United Kingdom government to allow certain qualifying exhibition production companies to reclaim payment on the qualifying cost which is incurred in putting on the exhibition and in order to do so, the company must be subject to UK Corporation Tax, along with being a wholly owned subsidiary of a charity or wholly owned by a local authority. Local authorities in the United Kingdom are not subject to corporation tax by themselves so they do not qualify to claim the relief. Apart from this they need to qualify on below mentioned criteria in order to avail or claim exhibition tax relief such as:
- The company must maintain a museum or gallery, including a library or archive and outdoor sites or works is displayed.
- The company must make an effective creative, technical or artistic contribution to the exhibition.
- The company must negotiate for, contract for and pay for rights, goods and services in relation to the exhibition.
- The company must have a direct role in all decision making related to the exhibitions.
- The company must be directly responsible for production of the exhibition, including de-stalling and closing of the same. In case the exhibition is being produced at more than one venue, more than one exhibition production companies may be involved other than the primary exhibition production companies who meet the requirements and qualify for the relief in relation to their costs.
- The company spends at least 25% of the core expenditure of the exhibition within the European Economic Area. It cannot be claimed by construction industry, landlords, contractors and freelancers and sole traders if they do not meet the above mentioned criteria.
What is an Exhibition?
An exhibition can be defined as a curated, planned, public display of an organized collection of objects, works and artifacts, which holds scientific, historic, cultural or artistic interests. A single object or work can make up an entire exhibition. However, it is important to note that an exhibition needs to be easily identifiable as a separate and distinct entity in its own right.
In order to qualify for the exhibition tax relief, the exhibition should not be of competitive nature i.e. the exhibition will not qualify for the relief if its main purpose or one of the main purposes is to sell anything which is displayed. Also if it involves sale of catalogues, posters or other merchandise associated with it, it will not be able to claim for the relief. And in order to claim for the exhibition tax relief, the display must be open for admission to the general public, though a small number of sessions may be excluded from general admission without prejudicing an exhibition normally open to the general public. An exhibition which includes live performance in the primary focus will be excluded, however live performances may nevertheless qualify for the separate Theatre Tax Relief.
What Costs are Included in an Exhibition?
The expenditures which are directly involved in an exhibition are called as core expenditures which basically includes fees of the curator, cost of de-installing and closing. It also includes cost of the venue where the exhibition is displayed for less than 12 months. At least 25% of the core expenditure needs to be incurred on the goods or services from within the European Economic Area (EEA).
Apart from these costs, there are certain costs which are excluded from the core expenditures, such as:
- Cost incurred in the marketing activity, raising money for the exhibition and legal activities, if any.
- In case the time duration between opening and closing an exhibition at a particular venue is more than 12 months, the de-installation cost and closing cost will not be a part of core expenditure for that particular exhibition.
- Any sort of running cost from the very day of the opening. For example: any kind of invigilation costs when the exhibition is up and running.
- Development expenditure that precedes production will not be counted under core expenditure in case the production does not go ahead.
- Expenditures in case of any live performance are not considered as core expenditure.
- The costs related to purchasing exhibits, works and objects will not be a part of the core expenditure. Also the costs of commissioning to collect are not considered as core expenditures.
- Any expenditure which is incurred in infrastructure is normally not considered as core expenditure apart from those which are done solely for the exhibition purpose. For example, if the museum or gallery has been painted, the cost involved in it will not be considered as core expenditure unless there was a requirement to paint the same in a particular color or theme for conducting the exhibition. In that case, the cost involved in doing the paint will be considered under core expenditure.
- Any costs which are incurred in checking the feasibility of the exhibition will not be a part of core expenditure.
- When the calculation is carried, the costs will be counted as core expenditures only if they are paid by the exhibition production company within four months of the end of the period of account for which the tax relief is being claimed for.
The amount of the additional deduction is the lower of:
The above mentioned additional deduction thus reduces the profits chargeable to Corporation Tax and if that’s not the case, then it will create a loss which will then be surrendered for a payable tax credit.
Charities have the option to use a subsidiary as the production company which gives them the option to extract the maximum value from the benefit. In this case, it is always better to have a legal agreement between the charity and the production company and this should be done for each exhibition to define the respective responsibilities of each party.
A production company creates a touring exhibition with total expenditure of £500k, including core expenditure of £300k, all of which is EEA expenditure. The production earns £600k for the Production.
|Total income is||£600k|
|Total expenditure is||£500k|
|Pre-Exhibition tax relief profit is||£100k|
What is a Touring Exhibition?
An exhibition is counted as touring exhibition if they meet the below mentioned criteria:
- It should be held at two or more geographically distinct venues;
- Since the exhibition is held at more than one venue, at least 25% of the objects or works which are displayed at the first venue should be displayed at each subsequent venue.
- The time interval between the de-installation of the exhibition at one venue and installation of the same at the second venue should not be more than six months.
How Much Relief Can Be Claimed?
As per the statement made by the Chancellor Philip Hammond in Autumn Statement 2016, the rate of relief was set as below:
- The rate of relief was set at 25% for touring exhibitions and 20% for non-touring exhibitions and the maximum limit of the same was capped at £500,000 of qualifying expenditure per exhibition. Relief is available on a maximum of 80% of qualifying expenditure which means museums and galleries will be able to claim maximum relief up to £80,000 in case of a non-touring exhibition and up to £100,000 in case of a touring exhibition.
However, under States Aid Rules, the Production Company is also limited to claiming a maximum payable credit of €50 million every accounting year.
How Can You Make A Claim?
You can make your claim by tax system and by filling a full corporation tax return, called as CT600. Along with this you need to submit the relevant documents such as accounts, tax computations and any other information which you find relevant in this regard.
Once you start the documentation process for the claim there will be some additional cost, administration and resources involved in benefiting from this new tax credit. It is advisable to consult the advice of a specialist before you start with the paperwork.
If desired, the production company can claim the tax relief in installments as well at the end of its each accounting year during the period when the exhibition is in run rather than making the same only on its completion. This is the strategy which the companies use when the timescale of the exhibition run is long because it involves long production schedules and facilitates cash-flow as well.
Frequently Asked Questions:
Q1: What is museum and gallery tax relief?
Ans1: Museum and gallery tax relief is introduced by the United Kingdom government to encourage and support the creative industries which facilitate the exhibitions and thus add more value to the UK culture.
Q2: What is an exhibition?
Ans2: An exhibition can be defined as a curated, planned, public display of an organized collection of objects, works and artefacts, which holds scientific, historic, cultural or artistic interests and in order to qualify as one, it should not be of any competitive nature.
Q3: What is core expenditure?
Ans3: Costs which are included in an exhibition such as fees of the curator, cost of de-installing and closing the exhibition, along with the cost of the venue if the exhibition has run at the venue for less than 12 months will fall under core expenditure.
Q4: What is the rate of relief for a touring and non-touring exhibition?
Ans4: Rate of relief is set at 25% for touring exhibition whereas it is 20% for non-touring one. The maximum limit of the relief is set at £500,000 of qualifying expenditure per exhibition.
Q5: How can you claim for the tax relief?
Ans5: You need to fill up detailed corporation tax form also called as CT600 and submit it to the concerned authority backed with all the relevant documents.
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