Creative industry reliefs are not new to the UK – the film, animation, video games, and high-end television industries are all potentially able to benefit from existing tax reliefs.
Now the live performing arts industry can also benefit following the introduction of Theatre Tax Relief (“TTR”) in the Finance Bill 2014. Claims can be made for qualifying expenditure incurred after 1 September 2014. So who can claim and how does the relief work?
Who can claim theatre tax relief?
TTR is available to production companies that are responsible for the production, running, and closing of a theatrical production. The production company can be a commercial company – be it can also be another organisation such as a charity or a charity’s trading subsidiary.
To qualify, the production company must:
• be actively engaged in the decision making at all stages of the production;
• make an “effective” creative, technical, and artistic contribution to the production; and
• directly negotiate for, contract for, and pay for rights/goods/services in relation to the production.
What is meant by ‘theatrical production’?
A theatrical production is defined as being as a dramatic production or a ballet where:
• the performers (including actors, singers, dancers etc) give their performances wholly or mainly through playing a role;
• each performance in the proposed run is live; and
• the presentation of live performances is the main object, or one of the main objects, of the company’s activities in relation to the production.
This means that the production of plays, operas, musicals, and potentially even circuses can all qualify for TTR.
There are also certain criteria that prevent a production from qualifying for TTR – productions that involve wild animals, include a contest or competition, are of a sexual nature, or where the main purpose is to advertise goods/services do not qualify.
Are there any other conditions for theatre tax relief?
Yes – there are two further main conditions that must be met in order to be eligible for the relief:
- Commercial purpose condition – only professional theatrical productions qualify, i.e. it is the intention that all or a high proportion of performances are to paying members of the public or provided for educational purposes
- EEA expenditure condition – at least 25% of the core expenditure on the production must incurred within the European Economic Area (EEA).
Interestingly, there is no cultural test to pass to qualify for and claim TTR.
What is the rate of theatre tax relief?
Relief is obtained on 80% of the lower of qualifying expenditure and overall available loss on the theatrical production trade, and there are two rates of relief:
• 20% – non-touring productions
• 25% – touring productions (subject to certain criteria to qualify as touring)
What expenditure qualifies for theatre tax relief?
Expenditure qualifies if it is incurred in relation to the producing and closing of the production. Expenditure incurred in the ordinary running of the production does not qualify – but a substantial recasting or set redesign mid-performance run may qualify.
Non-direct costs such as financing, marketing, legal services, or storage do not qualify.
Is there a separate tax return?
No there is no separate return. The relevant tax is corporation tax and the relief is claimed via the CT600 corporation tax return. This raises a couple of practical points.
An organisation can still claim the relief even if it has does not have a corporation tax liability against which to offset the relief (for example due to no taxable profits for the period) or if it does not pay corporation tax (for example if the organisation is a charity and it has been approved by HMRC as exempt from tax) – in such circumstances, the relief is obtained by means of a cash payment from HMRC.
There are also a couple of further practical considerations for charities. The first is that charities are unlikely to be preparing and submitting annual corporation tax returns. Therefore, these will now be required each year in order to claim the relief.
The second consideration is that charities may require a trading subsidiary in order to claim the relief, for example if the charity is unincorporated (which may give rise to further practical issues such as VAT impact and group reporting requirements).
Let’s take a simplified example of a non-touring opera production. Total income on the production is £1.5million, and total expenditure is £2.5million. Let’s assume that qualifying expenditure is £2million.
In the above example, relief is obtained on 80% of qualifying expenditure – meaning relief at 20% of £320,000 (£2million x 80% x 20%). As noted above, this may be a cash payment from HMRC as it doesn’t have to offset a tax liability.
This is a new relief and, given the detailed guidance from HMRC is not expected until Spring 2015, there may be devil in the detail – conditions and criteria mentioned above are certainly not exhaustive. However, the relief is available now for qualifying organisation and well worth investigating. To find out if your organisation has a valid claim or for further information, please do get in touch.