Funding the arts

With the publication of the Government’s Culture White Paper in March 2016, now is a good time to look at the challenges that organisations in the arts face, developments in funding, and how organisations can ensure they are claiming all the tax reliefs available.
When we consider the impact the arts have on the UK we often think of the obvious social and cultural factors. Yet, at the Conservative Conference in October just gone, Culture Secretary Karen Bradley referred to culture as “our main source of soft power”, “sport, heritage, and the arts can bring us together and open doors”. Though organisations within arts and culture contributed an astounding £5.4bn to the UK economy and employed over 300,000 people in 2014, it’s surprising how often we forget the sector’s bearing on the economy.

The arts have however seen a significant reduction in traditional sources of funding since the recession of 2008 thanks to cuts to government grants. While the 2015 Autumn Statement granted a surprising, but welcomed, four year settlement from the Treasury, it is often forgotten that one of the largest supporters of the sector is local government. Collectively, local councils invest £1.1bn in the arts but, unfortunately, it is also they that have suffered some of the largest cuts in budgets since 2010.

“Therefore, a mix of repayable finance and donations is often required in order to fund the activities. The focus on business models and financial strategy has therefore never been more important in the sector.”

Another source of funding for the arts is individual donations. Although non- public funding has grown consistently year-on-year since 2010, there has been  an interesting shift in the way people give to organisations. At one end of the scale, high-net-worth individuals are moving away from setting up enduring foundations towards one-off donations, and at the other end, we find individuals often wanting to give to a specific cause or give their time rather than a financial donation. 

While times of austerity clearly provide challenges, they can also reveal opportunities, with the most innovative organisations being active in seeking out new sources of funding. 

Growing revenues and impact through investment

The ability of the arts to generate sustainable revenue is an essential factor in attracting investment. Many galleries, museums and theatres have the ability to generate sustainable cash flows through refinement of their business models. Therefore, with the ongoing challenges surrounding the raising of donations and grants, entrepreneurial approaches are on the up. 

There is new investment in the sector enabling organisations to reach their potential. The Arts Impact Fund is an Arts Council backed initiative to enable financial investment in the sector. In April 2016 it made its first investments into three arts organisations. This included financing the development of a property for affordable studio space by the Bow Arts Trust and the repair of dance space to generate greater rental income for South East Dance. 

There are a range of other forms of social investment that arts organisations can access, so long as they are able to demonstrate their impact and generate sustainable cash flows in order to repay the finance. 

Financial investment options for not-for-profit organisations have historically been limited due to asset locks and their inability to provide equity stakes. Social finance options have increased in recent years beyond the charity departments of the mainstream banks. Arts organisations can now access bonds, quasi-equity finance, loans where interest rates are linked to social performance or unsecured loans where the lender’s risk appetite is higher due to the social return.

In most of these cases, the transaction costs and expertise required to access the finance can be prohibitive. There are also a number of grant pots currently available to meet the transaction costs of setting up this finance. One example is the Big Potential Advanced fund, which provides grants to fund set up costs for those seeking to raise over £500,000 of repayable finance. Buzzacott is an approved provider on this fund. 

Many arts organisations have a mix of sustainable revenue streams and activities that require donations or subsidy. Therefore, a mix of repayable finance and donations is often required in order to fund the activities. The focus on business models and financial strategy has therefore never been more important in the sector

Tax relief for the arts

Tax reliefs from the Government, which offers tax incentives for investment in creative industries can also provide alternate funding. For the British film and television industry tax incentives have been around for a number of years; now similar reliefs have been introduced for theatres, orchestras and, from April 2017, museums and galleries. Many new productions which otherwise would not have been possible have been funded through these reliefs, with Theatre Tax Relief giving back £25m in its first year alone.
  • Theatres
Theatres can claim an enhanced Corporation Tax deduction equal to 100% of qualifying expenditure* incurred from 1 September 2014 and where this enhanced deduction results in a loss, the theatre can surrender that loss for a tax credit of 20% (or if a touring production 25%). Theatre charities which are normally exempt from Corporation Tax can also benefit from a rebate via this tax credit. The theatre performance must be a live performance and includes a ballet, play, opera, musical, circus or any other qualifying dramatic piece.
  • Orchestra
Orchestras have similar relief for expenditure incurred on or after 1 April 2016. However there is a tax credit of 25% where the enhanced loss is surrendered and there is no distinction between touring and non-touring productions. There must be at least 12 instrumentalists, a reduction on the original stated requirement of 14.
  • Museums and galleries
The new museums and galleries tax relief, obtainable from next year, will aim to help support them to develop new creative exhibitions and display their collections to a wider audience. The relief will be available for qualifying costs of temporary and touring exhibitions.
  • Gift Aid and “friends of” schemes
As well as tax credits for charities in the arts, there are other tax incentives such as Gift Aid or “friends of” schemes where the charity can benefit from 25p in the £1 on payments from UK taxpayers who may in turn be able to claim higher rate tax relief on their contributions. Although careful consideration needs to be given to the VAT implications of “friends of” schemes following recent cases, it is still worth museums, galleries and theatres exploring the benefits of Gift Aid.

Charities and social enterprises can benefit from supporter funding via the new tax efficient Social Investment Tax Relief, where the investor can obtain 30% tax relief on loan or share investment.  

Whether you are a gallery, museum, theatre or involved in the arts, it is important that you determine what funding is available. Buzzacott can help you do all this from a background of specialist experience and technical knowledge. Our focus is to make the difficult job our clients do as easy as possible.

* Qualifying expenditure is generally the set-up and closure costs of the production, core expenditure and the amount that can be claimed is the lesser of the European Economic Area (EEA) core expenditure or 80% of the total core expenditure.

How we can help

For more information or advice tailored to your circumstances, please speak to your usual Buzzacott contact or email enquiries@buzzacott.co.uk.

This article first appeared in the third issue of our firm-wide magazine, Beyond the Numbers. To download the full magazine, please click here.
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