Theatre Tax Relief
Initially announced in the Autumn Statement last year, Finance Act 2014 confirmed the introduction of a new tax relief for theatre production. The relief will be available from September 2014, and will “recognise the unique cultural value that the theatre sector brings to the whole of the UK”. The relief will adopt a similar model to film tax relief, with relief at 25% for touring productions and 20% for other productions. Relief will be available as a “super deduction” for tax purposes or as a payable tax credit. To qualify, the business must be incorporated (subject to Corporation Tax), and engaged in theatre production. It is likely therefore that charities/those in the subsidised sector, will have to incorporate a trading subsidiary in order to benefit from the relief. Further guidance is expected from HM Revenue and Customs (HMRC) in September.
Qualifying core expenditure
Only expenditure directly incurred in theatre production will qualify for relief, as follows:
- Expenditure must be directly incurred in theatre production and integral to the production process;
- 25% of the expenditure must be incurred in the EEA (there is no requirement for the performances to take place in the UK or EEA);
- Indirect expenditure, such as marketing, entertaining or financing will not be eligible;
- Speculative development costs and ongoing running costs (rent, salaries, crew fees etc.) will not be eligible; and
- Production costs such as script fees, casting and rehearsal costs, sets, costumes and visual/sounds effects, will be eligible.
In order to qualify for relief, the company must, at the beginning of the production phase, intend that all, or a high proportion of the proposed live performances will be to paying members of the general public or provided for educational purposes.
- Relief will be available on 80% of qualifying core expenditure, as defined above;
- Relief will be available as “super deduction” for Corporation tax purposes, or as a payable tax credit;
- Claims for the relief will be made in a company’s Corporation Tax Return; and
- Each production will be treated as a separate trade and for co-productions, only one company can claim this relief.
A touring production has eligible costs of £500,000, including sets, costumes, rehearsal, script, cast and crew pre first performance. A claim for payment of £100,000 can be made to HMRC: (25% x(80% x £500,000)) = £100,000.
The Subsidised/Charitable Sector
As stated above, it is intended that charities/those in the subsidised sector, will have to incorporate a trading subsidiary in order to benefit from the relief. Trading subsidiaries are of course common in the charitable sector, but the funding of such subsidiaries is regulated by charities law. It may not be possible to set up and fund a new subsidiary company for the purpose of benefitting from this tax relief.
Ideally, a mechanism which allows charities to claim the tax relief direct should be introduced, but recognising that this would require significant change to the proposals, we await HMRC’s guidance for further details on how the relief will be implemented in this sector.
Please contact Katharine Arthur, head of tax, if you have any queries.