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Theatre Tax Relief – A Guide

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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:

  1. 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
  2. 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).

An example

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.

Conclusion

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.

 

Taxes and Reliefs Affecting Charities – Part 2

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In the second part of my mini-series on taxes and reliefs affecting charities, I identify and discuss a further 5 areas where charities may be affected by UK tax legislation, including business rates relief.

1 Inheritance Tax
Reliefs are available to individuals leaving at least 10% of their estate to charity, with the estate attracting a lower inheritance tax rate.

Transfers of property to a charity are generally exempt from inheritance tax, as long as the property is held for charitable purposes.

2 Gifts of Land and Shares
Gifting certain assets such as land, UK listed shares, and some other investments to charity can generate income and capital gains tax reliefs for the donor, subject to certain criteria and anti-avoidance provisions.

These reliefs are available to the donor – the charity benefits from receiving the assets.

3 Stamp Duty Land Tax
Charities are generally exempt from paying stamp duty land tax (SDLT) where the property is used directly for charitable purposes, or indirectly by generating investment income to fund its activities.

There are conditions that may require repayment of the relief, for example if there are changes in circumstances of the charity and/or the use of the property.

4 Business Rates Relief
Charities occupying commercial property used for charitable activities are entitled to 80% relief against the full business rates – and local authorities can waive the other 20% if they wish.

However, this relief is not usually available if the property is held or occupied by a charity’s trading subsidiary since this carries out non-charitable activities.

5 VAT
VAT affects a charity in several ways, such as whether a charity is required to charge VAT on any services it provides, whether it is able to reclaim any VAT it has suffered, or whether it is entitled to relief on the goods and services it buys.

Even if a charity is not considered to be trading, it may be carrying out a business activity that requires it to register for VAT, such as charging admission to view property, selling advertising space or sponsorship in return for providing the donor with a benefit, and hiring out property.

If undertaking fundraising events, a charity may not need to charge VAT on income from the sale of tickets if the events are clearly organised and promoted with the aim of generating funds for the charity and its charitable activities.

Charities may carry out certain activities that are zero-rated – this requires them to register for VAT, but allows them to recover the VAT paid in relation to these activities without charging VAT on its supplies. Such activities include sale or hire of goods donated to the charity.

If a charity does carry out a business activity that requires it to register for VAT, then it can reclaim VAT incurred in connection with this business activity.

Charities are also entitled to various VAT reliefs on expenditure not available to individuals or businesses. Currently, these include a reduced rate of VAT charged on fuel, power, and certain energy saving materials used in a charitable building, and zero-rated supplies including advertising, certain medicinal products, and selected goods used in connection with collecting donations.

Conclusion
UK tax legislation can be a minefield, and it is now more important than ever that organisations are aware of their responsibilities. However, there can be generous allowances and reliefs available – so please do get in contact if I can assist your organisation take advantage of these whilst fulfilling your compliance requirements.

Taxes and Reliefs Affecting Charities – Part 1

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“Charities don’t pay tax!”

If only things were that simple!

It could be suggested that charities are more likely to be exposed to the impacts of tax and tax administration than commercial companies.

In fact, a charity is likely to suffer tax – paying VAT on its purchases which it may not be able to recover.

A charity may not actually pay any tax on its income or gains, or have to prepare tax returns – but it must meet certain criteria in order to get these exemptions. Charities need to be aware of all conditions and criteria in relation to their tax position, not least meeting HMRC’s definition of a charity.

Below I highlight some of the common taxes that impact charities, as well as some of the reliefs and exemptions available to charities.

1 Income and Gains
Generally, charities are exempt from income, capital gains or corporation tax on their income and gains provided that both the income and the assets are used for charitable purposes.

This applies to most sources of income such as donations, legacies, rental income, income from investments, capital gains, and lottery income.

Money generated from fundraising events also attracts this exemption.

2 Trading
Do charities trade? Yes they do – even if there is also a separate trading subsidiary company. Providing services under contracts, running lotteries, and selling tickets or sponsorship for fundraising events can be classed as trading income.

If these activities are an integrated part of a charity’s objectives (or “primary purpose” as it is known), carried out by the beneficiary, and within certain turnover limits, then the income should be tax free.

Wholly-owned trading subsidiaries are common and allow charities to separate trading activities from their core activities, whilst enjoying the relief available arising from the gifting of the subsidiary’s profits to the charity.

3 Gift Aid
Making a qualifying donation under gift aid provides benefits to both the individual and the charity – the individual obtains basic rate tax relief on the donation at source and the charity reclaims 25% of the gift from HM Revenue & Customs.
The charity must obtain a declaration from the individual confirming certain facts in order to claim the gift aid relief.

The donation must also meet specific criteria – including being from an individual who cannot receive any benefit, in excess of certain limits, from making the donation.

Special conditions on reclaiming gift aid apply to those charities that generate funds through auctions, membership subscriptions, fundraising events, and admissions to view property.

New simplified procedures, the Gift Aid Small Donations Scheme, came into effect from April 2013, enabling charities to reclaim gift aid on donations of £20 or less, up to an annual maximum of £5,000 per charity, without obtaining individual declarations (with the aim of reducing some of the administrative burden). To qualify, a charity must have existed for at least two years and made a successful gift aid claim within two of the previous four tax years.

4 Corporate Donations
Whereas gift aid provides relief to both donor and charity, there is no direct relief available for the charity when receiving donations from companies. However, the company is able treat a donation as deductible against its own taxable profits.

This also applies to the trading subsidiaries of charities – gifting the profits to the charity eliminates the subsidiary’s tax charge on its trading profits (although such a donation cannot create a loss to offset against non-trading profits). The donation must be physically paid over within nine months after the end of the accounting period to which it relates.

The charity must use the donation towards its charitable purposes.

Summary

UK tax legislation is complex and ever-changing. Navigating this maze can be a confusing, and even overwhelming, experience. In the second part of this blog, I look at 5 further taxes and reliefs available for charities.

Please do get in contact if I can assist your organisation make the most of the reliefs available whilst remaining fully compliant.