ARTS COUNCIL GRANTS: INCOME TAX LIABILITY (Hansard, 9 March 1978)

§ Lord BOYD-CARPENTER
My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.

§ Baroness BIRK
My Lords, the noble Lord is in an instructive mood today. As the law stands, such payments may be subject to tax according to the particular circumstances of the recipient. This has been questioned by the Arts Council, which is seeking the opinion of leading counsel. In the interim the Inland Revenue will take no action to settle the tax liability on such payments.

§ Lord BOYD-CARPENTER
My Lords, while thanking the noble Baroness for the latter part of that Answer, will she confirm that since 1968 there has been an understanding with the Inland Revenue that these grants would not be treated as taxable? As there has been, so far as this House is aware, no legislation altering the statutory position, can she explain why the Inland Revenue have thought it necessary at this moment to raise this question at all?

§ Baroness BIRK
My Lords, the Inland Revenue did not raise the question. It was the Arts Council who raised the question. The Inland Revenue agreed to this moratorium, and I think we are all very happy that they have done so. There is no specific legislation dealing with the tax position of these particular payments. The general position is that where a grant or prize arises to someone directly as a result of his exercising a profession, that sum is considered to be taxable. There has been no change in practice. What has happened is that the amount at the disposal of the Arts Council has increased, so the number of grants and bursaries has increased. The way these are assessed depends very much on the individual 916 circumstances of a particular individual, and whether in fact it is part of, or whether it is outside, his profession.

§ Lord BOYD-CARPENTER
My Lords, is it not a fact that the Inland Revenue, though they may not have raised the question, precipitated it by raising assessments contrary to the practice of the last seven or eight years? I was asking the noble Baroness to explain why they have done so.

§ Baroness BIRK
My Lords, I understand from the Inland Revenue that there has not been a change of practice. In fact there have been more grants and awards. I would ask the noble Lord to go back to my original Answer, where I explained that there is a moratorium on this matter. The Inland Revenue are as anxious as the Arts Council to get what is really a grey area cleared up. I think the fact that the Arts Council has gone to leading counsel, and that there is this moratorium, means that we should wait and see what emerges.

§ Lord ROBBINS
My Lords, the noble Baroness gave a partial elucidation of past practice. Could she inform the House whether Nobel Prize winners have ever been deemed eligible for taxation under that heading?

§ Baroness BIRK
My Lords, that is a different question, because the Question really referred to the Arts Council. I inquired about this, but I cannot remember whether the answer was yes or no. I had better write to the noble Lord about it. That is a particular award. We are now talking about grants and bursaries; that was the Question.

The Earl of GOWRIE
My Lords, I am anxious to let the noble Baroness off the hook on the question of Nobel Prizes, but is she not aware that she did use the word "prize" in her answer to one of my noble friend's supplementary questions? Is there not a distinction where taxation is concerned between an award or bursary and a prize? The latter could hardly be considered as income.

§ Baroness BIRK
My Lords, I used the term "prize"; this is a term which is used when discussing specific legislation. It is difficult to distinguish also between 917 bursaries and grants. The point is whether, whatever one calls it, it arises out of your profession or whether it is something that you are doing which is quite separate from your ordinary work; that is the broad criterion. But again, as I said, it depends on individual circumstances. I would add that the person who feels that he has been taxed unfairly always has the right to go to his local commissioners, and, as I understand it, up to now the Inland Revenue has never then taken the matter any further.

The Earl of COWRIE
My Lords, while thanking the noble Baroness for that answer—this is, as she said, a grey area—may I ask her whether she could make representations to her right honourable friend that we have this grey area cleared up by the next Finance Bill?

§ Baroness BIRK
My Lords, I will certainly make representations. I cannot give any time limit. I am aware that it is a grey area, and my colleagues in the Government are sympathetic to the whole problem.

§ Viscount ECCLES
My Lords, would it not be a good idea to leave the grey area grey?—because the artists have done quite well and I am glad of that. Is it not the fact that many other people receive bursaries which are taxed? I think that it would be better to leave the situation as it is.

§ Baroness BIRK
My Lords, the noble Viscount, Lord Eccles, certainly has a point, because there are a great many other grants and subsidies handed out by the Government which are all, in fact, taxed. There is a great deal to be said for leaving "grey", grey.

§ Lord SHINWELL
My Lords, should not my noble friend exercise a little caution in this matter? If bursaries and grants associated with the Arts Council are not to be taxed, then what is the situation as regards redundancy payments when people are disemployed? Will those grants be subject to tax?

§ Baroness BIRK
My Lords, the Question with which I was dealing and to which I am trying to restrict my Answers deals with Arts Council grants and bursaries. If we start wandering into 918 other areas we shall get right outside the Question and into very deep financial waters.

§ Lord SHINWELL
My Lords, will my noble friend define a "grey area"?

§ Baroness BIRK
My Lords, a grey area is an area which is neither totally black nor totally white.