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HMRC has updated its guidance on creative industry tax reliefs from Corporation Tax to provide further clarity on the operation of Museums and Galleries Exhibition Tax Relief (MGETR).

MGETR is a potentially valuable relief which can be claimed in respect of activity which many cultural organisations regard as their "bread and butter", allowing qualifying entities to claim a 20-25% subsidy on the costs of producing permanent, temporary and touring exhibitions up to a specified limit per exhibition.  Exhibitions must satisfy certain criteria in order to qualify for the relief and certain exhibitions are excluded, including those in which anything displayed is for sale, and those in which anything displayed is alive. Where an exhibition is loss-making, the loss may be surrendered in return for a tax credit.

The updated guidance – published in the form of an internal manual – is helpfully broken down into searchable chapters, and contains worked examples of how the relief operates and what can be claimed.  One point that is not terribly clear from the manual is that the relief is available to any entity which is within the charge to corporation tax (regardless of whether or not it actually pays corporation tax), and need not be a Companies Act company. Entities such as CIOs, royal charter bodies and statutory corporations are therefore likely to be eligible.

For cultural organisations which already have – or may be considering establishing – one or more trading subsidiaries, an interesting aspect of the relief is the question of where qualifying exhibition activity should take place, and what contractual arrangements should be made to ensure that the relief is used as effectively as possible.

To claim the relief, an organisation must be able to treat each qualifying exhibition as a separate trade, with its profits and losses calculated separately from any other activities (including any other exhibition). Partly for this reason, and partly due to the corporation tax charge requirement, some cultural organisations may decide to form a wholly-owned subsidiary to undertake qualifying activity and claim the relief.

In order to qualify for the relief, an entity must be both responsible for production of an exhibition at a venue and actively engaged in decision-making, as well as directly negotiating contracts and paying for rights, goods and services. For many cultural organisations such core, exhibition-related functions will typically be located in the parent charity (along with curatorial and exhibition staff), with subsidiaries more commonly used for trading activities such as operating shops and cafés and running events. The manual notes that, "It will not be sufficient for a charity or local authority to carry on the functions of a [production company] … and merely to use the subsidiary to claim the tax relief… This is not to say, however, that a trading subsidiary which meets the [production company] description cannot subcontract some activities back to a charity or local authority parent." HMRC does however caution that advice should be sought on the legal and tax implications of structuring activity in this way, and organisations will wish to ensure that such arrangements are appropriately recorded.  

The relief is currently limited to a period of five years, so cultural organisations will wish to think carefully about the benefits which stand to be gained from it, and the most efficient and cost-effective way of taking advantage of the relief while it is available. In that context, HMRC's manual should provide a helpful springboard for discussions both internally and with professional advisors. 

If you require further information please contact Laetitia Ransley, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

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