March 29th, 2017

I’ve been awarded a grant from the Arts Council – is it taxable?

As with most areas of taxation,  the answer to a question is usually………..possibly

Taxation of prizes and grants for creatives is a grey area.  I wrote previously about current practice regarding the taxation of prizes here.

The taxpayer has responsibility for reporting their income via the Self-Assessment Tax Return.  So, the taxpayer needs to come to an informed decision as to whether they believe the the receipt is taxable or not.

The starting point is to look at the legal statutory position.  This tells us that income from a trade, profession or vocation must be declared for income tax purposes.  However, in 1979, the Arts Council of Great Britain and Inland Revenue reached an agreement and issued a Statement of Practice regarding the treatment of the Council’s awards and bursaries.  The Statement of Practice is no longer publicly available but there is no reason to think that it is not relevant today.  This Statement has no legal force and is just an expression of view by HMRC which does leave the door open for anybody in receipt of a grant or award to challenge this view on the merits of their own case.

There are two categories of award, A (taxable items) and B (items exempt from tax) see here .  It is advisable that if you receive such an award you endeavour to obtain documentary evidence from the provider of the category that they consider the award to fall into.

In my opinion, best practice is to disclose any award on your Self-assessment return together with evidence to support your treatment of the award for tax purposes.  If the receipt is fully disclosed this limits the window of opportunity for HMRC to query your treatment to 12 months from the submission of your tax return.  You have to balance this with the fact that you are highlighting a potential issue for HMRC to look into further.  If you don’t disclose there is a potential window of 20 years (depending on category of fault that HMRC deem the non-disclosure to fall into) for a discovery assessment to be raised.  HMRC would need to provide evidence of why they believe income has not been disclosed, it would be possible for them to identify this from a review of awards from the Arts Council.

In the case where full disclosure is made of the award and Inspectors argue that the amount is taxable then it would be worthwhile considering an appeal against the decision.

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Louise heads our Creative Team and specialises in providing friendly expert advice to actors, writers and other entertainment professionals.

Louise trained as a chartered accountant with Price Waterhouse in Liverpool before becoming a Senior Compliance Manager in the corporate tax department of the Manchester office.

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