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by Martin French
If you're a bit of a news-hound you may have noticed some folks in the media complaining about proposed changes in tax law that might mean fewer large donations for the great and not really that good at all in the arts.
Missing from a lot of the coverage is any form of explanation as to how the changes are a bad thing for the arts or why tax changes should stop rich people being nice.
Step forward your good friends in TheLab™ to make everything nice and clear because we spoke to the people that know the facts.
If you think of ACE as the Big Bad then a Bigger and Badder would have to be The Treasury, the people that decide what all the money is spent on.
We know what you're thinking, how do changes in tax law for wealthy people, and people in general, stop them giving money to the arts. Will they have less money?
The simple answer is, sort of. Let's use the example of a fairly well off individual who earns £250,000 per year and also has significant cash assets available to them.
First of all, kudos on all the cash. Second, that level of income means that you fall under the 50% income tax bracket. Before you have even started you are going to be giving £125,000 to the government in income tax alone. Someone earning that kind of money has no personal "tax free" allowance.
Anybody who has ever filled in a tax return however knows that the mothers milk of a tax return is in the deductions. You deduct certain expenses, payments and hundreds of other things to ultimately reduce the amount of taxable income you have.
The sheer number of possible deductions you can use, especially when you start bringing company ownership, assets, property, overseas income and more into the mix is pretty staggering.
What we are concerned with here however is giving money to charity and almost all arts organisations are charities. Currently giving money to a charity counts as a deduction, an unlimited deduction.
If we take our well off person making £250,000 per year what they can do, at the moment, is deduct their entire income tax liability by making charitable contributions. If they donate £250,000 they can deduct that entire amount and pay zero income tax.
The Treasury told us that wealthy individuals use a variety of methods to limit tax and it would be rare for somebody to use just one method to reduce their tax liability. But you get the point.
Using our very simple example you can see why giving money to a charity works for you if you are wealthy because if you are smart you get almost all the money back that you gave in donations.
The proposed changes will mean that the maximum deduction that any one person can make for charitable donations is either £50,000 or 25% of their income, whichever is greater.
It's important to note that last phrase; "whichever is greater". If you earn £1Million pounds per year you can still claim up to 25% of your income as a deduction which amounts to £250,000. Still a significant deduction.
Remember, you can only claim the deduction if you actually give money to charity. The charity is still benefiting even if you disagree with wealthy people being able to deduct their tax liability down to almost nothing.
Fear and Loathing In Central London
For the most part none of this affects the small or mid-scale because rich people don't often give them any money anyway. It's the large-scale that's sweating the details on this.
Many, like The National Theatre, claim that sans the incentives wealthy people will show that while giving money to their favourite theatre is a nice thing to do it's even nicer if you can claim it as a tax deduction and get your money back.
Asking around some of the big venues we got these responses. First of All from Sadler's Wells CEO Alistair Spalding;
"At a time when the government is placing such emphasis on individual philanthropy as an important substitute to government funding across arts and charities, it is unhelpful and indeed damaging to now create confusion over how private giving can be managed. The existing allowances and Gift Aid provisions ensure that giving to Sadler's Wells is as tax efficient as possible, and although at present we don't have any concrete examples of private donors being affected by the current tax limits under discussion, we would regard with great concern any step backwards in legitimately facilitating those who support the arts."
Geoff Sweeney, Birmingham Royal Ballet's Development Director was somewhat more concerned;
"We are gravely concerned that the budget sends the wrong signal to those who we are encouraging to make large donations who will see the cap as a disincentive. Given the small pool of potential donors we are working with, the margins for error could have a significant financial impact even if just a handful of donors are discouraged by these measures."
The National Theatre, who have been complaining the loudest about these changes, would not let us talk to any of their fundraisers because most of them were in New York. Can't be struggling too much then.
Curiously, none of the organisations we contacted would put their fundraisers on the phone, settling instead for emailed comments.
Good or Bad
So will these changes be "bad" for the arts. Well, if you are small to mid-scale then you won't notice any difference. You're not getting those kind of donations anyway so move along, nothing to see here.
As for the rest. Well, as the Treasury explained wealthy people use more than one mechanism to reduce their tax liability. If they can't use charitable giving as much as they previously could then the chances are they will just use some other method.
If that happens then large charities will probably lose out. However, if the government closes down all the other methods people use to limit income tax liability then...... well rich people may well just keep all their money to themselves. It is charitable giving after all and they don't have to give it to anybody if they don't want to.
At the moment none of this matters much because the changes are more than a year away so plenty of time for you all to become rich and worry about how creative your finances are.