New cultural tax relief increase offers limited benefit for larger museum and gallery exhibitions
As announced by the Chancellor in the autumn Budget 2021, rates of relief for cultural tax reliefs are temporarily doubling with effect from 27 October 2021. However, neither the Chancellor’s speech nor the HMRC press release mentioned the cap that applies to museums and galleries claims. This is fixed at £100,000 for touring exhibitions and £80,000 for non-touring exhibitions. Although this is undoubtedly useful for many organisations, larger exhibitions can cost millions of pounds to deliver, and the temporary doubling of the relief will not provide any benefit.
HMRC has now confirmed that there is no intention to increase the cap.
Will museums and galleries really benefit?
The relief and the cap apply to individual exhibitions. If a museum or gallery puts on small exhibitions and claims less than half the cap amount per exhibition, they will benefit fully from the new rates. However, museums whose exhibitions are large enough for the cap to apply, unless this is raised in tandem with the credit rates, will get no benefit from the increased credit rate.
A similar cap does not apply to theatres and orchestras, so whilst the changes are welcome for a sector hard hit during the pandemic, some museums and galleries will miss out of the temporary doubling of the relief.
The detail and examples of this in practice
There are three types of tax relief, all of which operate in a broadly similar way.
- Theatre Tax Relief (TTR).
- Orchestra Tax Relief (OTR).
- Museums and Galleries Exhibition Tax Relief (MGETR).
Each type of organisation can claim additional tax relief on certain types of ‘eligible’ expenditure. This is the expenditure of preparing for a performance or exhibition and taking it down afterwards. The expenditure includes performers’ and staff time preparing for the performance or exhibition, costs of rehearsals, and making costumes and scenery. Running costs while the exhibition or performance is open to/presented to the public are not eligible, but costs of dismantling sets and taking down exhibitions are.
The additional tax relief is 80% of the eligible costs. For organisations that do not have tax liabilities, e.g. for charities or trading subsidiaries where profits are covered by gift aid, the tax relief is converted into a repayable amount, a tax credit, multiplying it at a rate of 20 or 25%.
However, museums and galleries are also subject to a cap on the amount of tax credit that can be claimed, which is £100,000 for touring exhibitions and £80,000 for non-touring exhibitions. Therefore, while theatres and orchestras can claim the maximum uncapped amount, museums’ and galleries’ claims are much more limited.
HMRC has informed us that there is no intention to increase the cap for MGETR to correspond with the increase in tax credit rates. Theatres and orchestras can claim the full amount of additional tax credit, while museums and galleries will be limited to the existing cap of £100,000 or £80,000. Due to the significant costs associated with a large exhibition, there will likely be no benefit in this scenario.
Example: relief claims for a large theatre production vs exhibition
| Theatre | Museum | |
| Total costs of production/exhibition | £1,400,000 | £1,400,000 |
| Eligible costs | £710,000 | £710,000 |
| Additional tax relief (80% of eligible costs) | £568,000 | £568,000 |
| Current tax credit claimable if touring (25% of additional tax relief) – | £142,000 | Capped at £100,000 |
| Current tax credit claimable if not touring (20% of tax relief) | £113,600 | Capped at £80,000 |
| New tax credit claimable after Budget day if touring (50% of tax relief) | £284,000 | Capped at £100,000 |
| New tax credit claimable after Budget day if non-touring (45% of tax relief) | £255,600 | Capped at £80,000 |
The above example demonstrates that under both the current and the proposed new rates, the museum’s ability to claim tax credit is capped. For example, if the cap were doubled, in the instance above, the museum would at least be able to claim an increase due to the increase in rates, to £200,000 or £160,000 for a non-touring exhibition.
If you would like to discuss your position further, please contact Naziar Hashemi or your usual Crowe contact.
This article was featured in Accountancy Daily in December 2021.
