I am repeating the following written ministerial statement made today in the other place by my noble Friend, the Minister for Arts, Lord Parkinson of Whitley Bay:
On 9 June 2020, the then Minister for Digital and Culture, Dame Caroline Dinenage MP, answered a parliamentary question from Anneliese Dodds MP (53581) on the tax treatment of emergency grants provided to freelancers by Arts Council England at the beginning of the pandemic, April 2020.
The question was answered, in consultation with the Arts Council, on the basis of information believed to be true at the time. It stated that:
“The Arts Council always recommends that grant recipients refer to HMRC and/or an independent advisor for advice that takes full account of their personal circumstances for tax. In general, as per the agreement reached between the Inland Revenue and the Arts Council of Great Britain in 1978, which we understand still applies, it is the Arts Council’s understanding that:
Grants awarded to support people to take time out to develop and explore their artistic and cultural practice—such as those grants recently made under the Arts Council’s emergency response fund for Individuals—should not be treated as taxable income.
Grants awarded to support the delivery of a specific project or projects would be treated as taxable income.”
Arts Council England was subsequently informed by HMRC that it considered the payments made from the emergency response fund would fall into the taxable category. This was on the basis that—similar to other covid relief grants—they were made to support businesses and jobs, replacing lost revenue of the claimants. This means that, where the claimant is self-employed, the receipts should be included in the computation of their trading profits.
Given the complexity of the tax treatment of grants, and the importance of this issue to recipients, Arts Council England and DCMS queried this decision with HMRC officials. Ultimately, however, HMRC were of the view that these grants needed to be treated consistently with other support funds.
There was a regrettable delay between this decision being finalised and recipients being informed of the tax treatment by the Arts Council. In addition, incorrect information was given from HMRC channels which relied on the statement made in the original answer to the parliamentary question, compounding the confusion.
I therefore asked DCMS and HMRC officials to agree that individuals would not be penalised where they had unknowingly submitted incorrect information and that they would be given the opportunity to correct their tax returns.
Arts Council England wrote on 19 January to all those in receipt of payments from its emergency response fund to advise them of HMRC’s position.
7,484 grants were awarded under Arts Council England’s “Emergency Response Fund for Individuals” programme, totalling £17.1 million, meaning an average grant of c. £2,285.
Recipients were therefore advised, ahead of the submission deadline, that:
they would not be charged a penalty if they filed their self-assessment return up to a month after the deadline;
if they needed to correct their tax return, HMRC would not charge any penalties for errors related to the grant payment in the original return; and that
if recipients did not correct their tax return—for instance, because they remain unaware that they have made an error—and HMRC subsequently discovers the error, HMRC would not charge a penalty if the error is a result of relying on incorrect official information.
This was an unfortunate error on the part of a number of Government and non-governmental bodies. I am very sorry for it. I trust the actions taken by my officials and agreed with HMRC have ensured that no individual is unfairly penalised as a result of this error.