Very close to this 31 January’s deadline for 2021 income tax returns, HMRC suddenly – and rather casually – indicated that ACE Emergency Fund payments were now to be treated as taxable.
ACE grants were specifically confirmed in Parliament back in June 2020 to be non taxable, with no need to provide any details in the tax return for the year ended 5 April 2021. The maximum award was £2,500. There is also an well-established agreement between HMRC and the Arts Council, dating back to the 1970s, that ‘time to work’ Arts Council grants (so general assistance grants, no those for a specific named project) are exempt from tax. My approach when preparing tax returns for clients was therefore to treat the ACE grants as exempt.
The Arts Council itself has also written to some recipients of the ACE grant, but it is apparent that many have heard nothing about this. Quite apart from going against the longstanding principle that changes will not be made to tax retrospectively or without new legislation being passed, I believe this is incorrect.
I am challenging this in principle, with the help of the Chartered Institute of Taxation’s technical department, but this will take some while and while I am hopeful, success is not guaranteed.
I am advising all clients who received an ACE relief grant from the Arts Council to pay a relevant amount of extra tax and national insurance as a precaution. Any client who received an ACE award who has not been in touch with me should please contact me as soon as possible.
I am not suggesting rushing to declare this in an amended 2021 tax return, but instead, adding a note that an ACE grant was received and the treatment is being challenged. If HMRC’s position does not change back, an amendment to the return to include the extra tax could be done at any time up to next January. If the challenge is successful and HMRC backs down, affected clients have paid some of their next tax due up front.
Nothing about this difficult situation has any effect on SEISS. Furlough payments are also unaffected. There is no impact either on the treatment of any receipts from the Arts Council before April 2020.