Alternative revenue generating activities
Due to the impact of social distancing requirements, many arts and culture charities have looked for alternative projects to allow them to continue to generate income while normal activities aren’t possible. We’ve seen several examples of these enterprises, including: commercial filming (using venues in a way that’s possible with significantly fewer people onsite) and opening space for local community hubs during lockdown periods.
It’s important to bear in mind that while some of these new activities are likely to continue to fall within the charitable objectives of your charity, and as such would be appropriate for them to be presented as charitable activities in the financial statements. The more commercial activities being undertaken are likely to require disclosure as “trading” income – these could include using your space as a community hub or producing online content with an educational purpose.
Another area to consider when undertaking alternative activities is how to allocate support costs given the change in the mix of projects being undertaken. Due to significant shifts in activities during COVID-19 closures, the basis of calculation for how to allocate support costs may need to change from time spent (given furloughing of staff) to floor space used, for example.
It should also be considered whether a shift in activities will impact on grant funding agreed prior to the pandemic, as there may have been restrictions on the level of commercial services you can provide. We’ve noticed that funders are generally being more relaxed with arts and cultural venues since the first lockdown and understand that use of the venues to generate income, whether charitable or commercial, is necessary during this period.
Similarly, with a shift to more commercial activities, the level of income that doesn’t fall under the charity’s primary purpose should be kept under review and carried through trading subsidiaries as required. This is to ensure your charity doesn’t surpass the small-scale trading limits for charities, which would result in potential corporation tax liabilities.