How accountants can help the show go on for Arts and Culture

There is some funding for ailing arts and culture businesses, but for the most part, the sector is struggling to survive.

  • Arts businesses will struggle if restrictions extend far into 2021.
  • Theatre Tax Relief and Credits can soften the blow for theatre, opera and ballet companies.
  • Government Arts funding is running out, but businesses still need support.
  • The loss of travel and tourism impacts heavily on the sector – Brexit could exacerbate this.
  • Some companies are restructuring to become social enterprises or community interest companies.

Specialist arts practice Moose has been offering pro bono services to its clients to help them to adapt and survive the pandemic. “We are taking on the role of Financial Director with a few clients to dive into their businesses and best support and advise where we can,” says co-founder and client director Barry Cumberlidge. “At times, we are more of a psychologist than an accountant but that’s fine by us. We all need to stick together and help one another during these troubling times.”

As with many sectors, the Coronavirus Job Retention Scheme (CJRS) and Business Bounce-back Loan Scheme (BBLS) have been lifelines for struggling arts and culture businesses. However, the strain that businesses are experiencing cannot last much longer. “Another six months of this is going to be hard. R&D tax reliefs and Theatre Tax Relief are definitely worth looking into and can help unlock monies from past years.”

Theatre Tax Relief

Companies involved in certain forms of live performance are eligible to receive Theatre Tax Relief, which could prove to be a saviour for many production companies. To be eligible to apply, the company must put on a play, musical, opera or other dramatic piece where performances are live and “the performers give their performances wholly or mainly through the playing of roles”. It also applies to ballets.

At least a high proportion of performances must be to paying members of the public or for educational purposes, and at least 25% of core expenditure is on goods or services provided from within the European Economic Area (it’s not clear if or how this might change post-Brexit transition period).

Companies must also be actively involved in planning, decision making and contract negotiation, and pay for the rights, goods and services necessary to put on the production.

Companies can either claim an additional deduction to reduce profits or increase a loss to reduce the amount of Corporation Tax they need to pay. If the company makes a loss, some or all of the loss can be surrendered for a Theatre Tax Credit, the standard rate being 20%. If the production is touring – performing in six or more premises or with at least 14 performances in two or more venues – you can surrender losses at 25%.

Additional deductions will be the lower of 80% of total core expenditure or the amount of core expenditure on goods or services provided from the EEA. This is a great option for theatre companies, but it only serves a narrow band of businesses within a varied sector.

Funding options

Partway through the lockdown, submitting to pressure from sector lobbyists and public petitions, the Government made £1.57bn of funding available for theatres, independent cinemas, music venues, museums and art galleries. The bulk, £1.15bn, was allocated to a support pot for English cultural organisations. £188m was split between Northern Ireland, Scotland and Wales, and the rest went towards cultural infrastructure and national cultural institutions.

While this funding was welcomed by the sector, critics said that it wasn’t enough. That seems to be the case at least in some areas – Cumberlidge says that Arts Council funding has become extremely difficult to get hold of. “One client cited that he was having more success with European countries.”

Travel restrictions and the impacts of Brexit

Much of the arts and culture world relies on physical locations to provide their goods and services. Many elements of the sector rely on travel and tourism, which have hit the rocks as a result of Covid-19. This is likely to be exacerbated by Brexit. “[Brexit will affect] tourism and the lack of government funding,” says Cumberlidge. “We’ve almost seen the impact of Brexit already.”

There will be import and export issues and complications around VAT when it comes to the movement of art, explains Keith Graham, a partner at Haines Watts. “There is also a clear concerted effort by some other world art centres, such as New York and particularly Paris in Europe, to wrest reputation and standing away from the UK. And we cannot forget the new European led Anti-money laundering Directive (AMLD5) which is particularly targeting the art market and imposing new procedures and obligations on dealers and even, it seems, artists themselves.”

Digital sales

Businesses that can work through digital platforms have fared a little better than others. However, sometimes it has been effective from a brand-raising, rather than a revenue-generating, perspective says Cumberlidge.

“The revenue model associated with digital is not mature enough to capitalise on this, and many companies are suffering financially, even though they are busier than ever on paper.”

While there has been a quite spectacular growth in online selling in the art world, many art buyers still want to ‘try before they buy’, explains Graham. “With no exhibitions and an inability for buyers, particularly those from overseas, to risk travel, the market has been devastated.” 

Art businesses that have given up on physical premises, using ‘pop-up’ venues on an ad hoc basis and harnessing the power of social media, have benefited most, he says. Those with expensive leases and work that does not easily lend itself to online sales are struggling.

Long term opportunities

Graham is not particularly optimistic about the prospects for the arts; the challenges of overseas markets, the high cost of leases in city centres, and competition from digitally savvy businesses will push some businesses to the brink. There will be opportunities for many others, however. “There is no doubt that with the death of retail strongly-predicted and the low cost of entry for those who do want to work online, the market will change. That too, could have an effect on prices. In summary, I think we have to wait and see the full impact.”

Cumberlidge is seeing a trend for commercial businesses to restart as social enterprises or community interest companies, which is opening up options. “Alongside this, private individuals are trying to find ways to fund the grassroots of arts and culture. The market is solving the problem of the central Government.”

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.

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