A week is a long time in politics: rapid and unforeseeable changes can transform the political and economic landscape. During one week in April 2017, UK politicians made significant changes affecting the financial prospects of the UK’s public-facing museums and galleries: they scrapped Exhibition Tax Relief (ETR).

To be precise, UK Parliament accepted government’s abandonment of a draft law that would have enacted ETR backdated to 1 April this year (Artnotes AM406), enabling public-facing museums and galleries that are charities to reclaim from HM Treasury expenditure on new exhibitions. This innovation was pledged in the chancellor’s Autumn Statement in November 2016: ‘Museums and galleries tax relief. The government will broaden the scope of the museums and galleries tax relief announced at Budget 2016 to include permanent exhibitions so that it is accessible to a wider range of institutions across the country. The rates of relief will be set at 25% for touring exhibitions and 20% for non-touring exhibitions and the relief will be capped at £500,000 of qualifying expenditure per exhibition. The relief will take effect from 1 April 2017, with a sunset clause which means the relief will expire in April 2022 if not renewed. In 2020, the government will review the tax relief and set out plans beyond 2022.’

On the basis of this pledge, greatly welcomed by UK museums and galleries, most then made exhibition plans and budgets for the coming financial year and beyond. Early in 2017, government introduced into Parliament its Finance Bill that would enact into law pledges of the chancellor’s Autumn Statement 2016 – including the ETR provisions. So far, so promising.

On 18 April 2017, before this Finance Bill (and all others proceeding through the legislative process) had completed its Parliamentary passage towards Royal Assent, the prime minister announced her intention to hold a general election on 8 June 2017, and the next day Parliament voted overwhelmingly in favour of doing so (in order to curtail the legal requirement for a fixed five-year-term Parliament ending in 2020). Also by law, Parliament must be dissolved 25 days before a general election, which in this case meant one minute past midnight on 3 May 2017.

And so government had 13 days or so to steer its outstanding Bills through Parliament or lose them: the so-called ‘wash-up’ period. During wash-up periods, government Bills cannot be carried over into the next new Parliament (constituted after the general election) to complete their passage and achieve Royal Assent; government is entirely dependent on the cooperation and support of opposition parties to reach agreement on Bills (as a whole or parts thereof) before dissolution of Parliament. The Finance Bill 2017 was a major casualty of this wash-up process: most of its provisions had been abandoned by 25 April 2017 when the financial secretary to the Treasury introduced into the House of Commons a new and substantially reduced Finance Bill, one that excluded the ETR provisions. Parliament approved the text of this much shorter Bill, which received Royal Assent on 27 April – therefore washing out the ETR provisions that had been present barely a week earlier.

Many UK museums and galleries are unaware or unclear about the prospects and demise of the anticipated ETR law, on which most have based their current and future exhibition plans and budgets. The absence of ETR pledged to be backdated to 1 April 2017 is unlikely to have an immediate impact on such plans and budgets, because the scheme required institutions first to make ‘core’ exhibition expenditure and then subsequently reclaim it from the Treasury. However, many institutions are likely to have budgeted to receive such ‘tax relief’ as income during the current financial year and may find themselves in significant financial difficulties.

The amounts of exhibition income/relief government pledged under the ETR scheme could have amounted to up to £100,000 for each exhibition during a year. HM Treasury defined ‘core’ expenditure eligible to be reclaimed as: ‘expenditure on the activities directly involved in producing the exhibition. This could include curator fees and the cost of de-installing and closing.’ Certain expenditure was specifically excluded from ‘core’ income/relief calculations: indirect expenditure on marketing, raising of finance, or general legal services; the costs of de-installing and closing if the period between opening and closing an exhibition at a single venue exceeded 12 months; invigilation costs when the exhibition was running; development expenditure if the exhibition did not go ahead.

Events that qualified under the ETR scheme were defined: ‘exhibitions and displays of objects, works and artefacts, which are considered to be of scientific, historic, cultural or artistic interest will qualify – this includes the exhibition of a single object or work … and the general public must have admittance to the exhibition, whether or not they are charged for admission.’ Specifically excluded were exhibitions that were ‘organised in connection with a competition of any kind, or its main purpose or one of its main purposes is to sell anything displayed. The sale of merchandise associated with the exhibition will not exclude an exhibition from relief.’

Not only was the ETR scheme a welcome innovation in principle, it was also well researched and developed in detail, largely as a result of wide consultation, especially with UK’s Arts Councils and public-facing museums and galleries community. Is ETR now lost forever?

The Treasury has recently commented on the loss of ETR, a spokesperson saying that ‘there has been no policy change in terms of the relief, however until a new government is in place there is now no guarantee the provision will come into effect’. And Sharon Heal, director of the Museums Association, commenting on ETR’s recent, loss said: ‘It’s a shame that the museums and galleries tax relief has been deferred to a new Parliament as it would have potentially benefited many museums and galleries throughout the UK. I hope that the new government sticks to this commitment and that parliamentary time can be found as quickly as possible.’ Is there still such a commitment?

On 25 April 2017 the financial secretary to the Treasury introducing her substantially reduced Finance Bill explained to the House of Commons that ‘the Bill is progressing on the basis of consensus and therefore, at the request of the opposition, we are not proceeding with a number of clauses. However, there has been no policy change. These provisions will make a significant contribution to the public finances, and the government will legislate for the remaining provisions at the earliest opportunity, at the start of the new Parliament. The government remain committed to the digital future of the tax system, a principle widely accepted on both sides of the House. We recognise the need for the House to consider such measures properly, as called for by [the] Treasury Committee. That is why we have decided to pursue those measures in a Finance Bill in the next Parliament, in the light of the pressures on time that currently apply.’

Since then each major political party has published its general election manifesto, on the detailed policies of which each stands and invites the UK electorate to give support by voting in their favour on 8 June 2017. No party’s manifesto pledges introduction of ETR.

© Henry Lydiate 2017

Note added January 2018. The Museums and Galleries Exhibition tax relief legislation gained Royal Assent on the 16th November 2017 as part of the Finance (No. 2) Act 2017. This means that the Museums and Galleries Exhibition tax relief is now law and fully in effect. The date from which the tax relief can be claimed has been backdated to 1 April 2017. The qualifying expenditure must be incurred on and after 1 April 2017 and before 31 March 2022. HL

This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.