Tax Relief for Creative Industries

Transcription

1 Tax Relief for Creative Industries

2 What we ll be covering in the HMRC presentations 1. Film tax relief and Television tax relief 2. New tax reliefs for Video games and Theatre 3. Administration of the tax reliefs and how to make a claim 4. Contact details 5. Questions? Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 2

3 Tax Relief for Film and Television Production

4 Film and Television: who can benefit and how Film and television production companies producing or coproducing films or relevant programmes that meet the qualifying conditions can benefit by making a claim to tax relief The tax relief works by either reducing the corporation tax payable by the production company or allowing it to surrender losses in return for a payable tax credit Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 4

5 Availability of film and television tax relief Film and Television tax reliefs are UK corporation tax reliefs: The film/television production company must be liable to UK corporation tax Relief is available if the following conditions are met in relation to the film/relevant programme: It is intended for theatrical release/broadcast to the general public It is certified as a British film/programme, and At least 10% / 25% of the core expenditure is UK expenditure Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 5

6 What is a film or television production company? A company that (otherwise than in partnership) is responsible for: Pre-production, principal photography, post-production and delivery of the film/relevant programme Is actively engaged in production planning and decision making during the first three of the above phases Directly negotiates, contracts and pays for rights, goods and services in relation to the film/relevant programme Note: The rules are relaxed for qualifying co-productions Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 6

7 Relevant television programme A TV programme is a relevant programme if it is: A drama (including comedy), documentary or animation Not an excluded programme And if the programme is not an animation: The slot length is greater than 30 minutes The average core expenditure per hour of slot length is not less than 1 million Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 7

8 Core expenditure and UK expenditure Core expenditure is expenditure on: Pre-production, principal photography and post-production (not development) To determine whether core expenditure is UK expenditure it is necessary to consider: The nature of the specific goods or services in question, and The place the recipient uses or consumes those goods and services Note: Expenditure unpaid within 4-months of the accounting period end is ignored Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 8

9 UK expenditure: Example A Film/Television production company enlists a screenwriter to prepare the initial drafts of a screenplay of a novel and to rework them into a script which is used as the basis of producing a Film/Television series. The nature of the services provided by a screenwriter is the provision of a script. The script is used as follows: Activity Preparing costings and shooting schedule Rehearsals Principal Photography Post production Location UK UK Part UK/overseas Part UK/overseas To the extent the script is used in the UK it meets the used or consumed in the UK test Apportionment of expenditure between UK and non-uk expenditure is to be made on a just and reasonable basis applied consistently. Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/2013 9

10 Taxation of activities of a film or television production company For corporation tax purposes: The company s activities in relation to a film/relevant programme are treated as a separate trade The profits or losses of the trade (before tax relief) are calculated by deducting costs incurred to date from the proportion of estimated total income treated as earned at the end of the relevant period, to the extent the costs and income have not previously been brought into account Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

11 Overview of how the relief operates If Film or Television tax relief is available to the company it may (on making a claim): Make an additional deduction in respect of qualifying expenditure (i.e. core expenditure) on the film/relevant programme when calculating the profit or loss of the separate film/programme trade Claim a tax credit for an accounting period in which it has a surrenderable loss Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

12 Amount of additional deduction The additional deduction is the lesser of: The qualifying expenditure that is UK expenditure, or 80% of the total amount of qualifying expenditure incurred to date less the total amount of additional deductions given for previous periods Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

13 Surrenderable loss The company s surrenderable loss in an accounting period is the lesser of: The company s available loss for the period (the loss in the separate programme trade for the period plus any loss for the previous accounting period that has not been previously surrendered or set against profits of the trade), and The available qualifying expenditure for the period Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

14 Amount of film tax credit If the company surrenders the whole or part of its surrenderable loss in an accounting period, the amount of the film tax credit to which it is entitled for the accounting period is: 25% of the loss surrendered (up to 20m of losses surrendered) 20% thereafter (the cliff edge between the rates has been removed from 1 April 2014) The company s available loss for the accounting period is reduced by the amount surrendered Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

15 Amount of television tax credit If the company surrenders the whole or part of its surrenderable loss in an accounting period, the amount of the television tax credit to which it is entitled for the accounting period is: 25% of the loss surrendered The company s available loss for the accounting period is reduced by the amount surrendered Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

16 Tax Reliefs for Video Games and Theatre Production

17 Two new reliefs for the Creative industries Video Games Tax relief Commenced for accounting periods that began on or after 1 April 2014 Theatre Tax relief Commenced for accounting periods that began on or after 1 September 2014 Both reliefs are based on the existing creative tax reliefs Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

18 Summary of video games tax relief Available to video games development companies: Liable to UK corporation tax Engaged in the development of qualifying video games Intended for supply to the general public That are certified as British Where at least 25% of the core expenditure is on goods or services provided from within the EEA Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

19 Video games that do not qualify Any video game produced for the purposes of: Gambling Advertising or promotion Any video game that isn t certified as British Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

20 Core expenditure on a video game Core expenditure is expenditure on: Designing, producing and testing the game (not initial concept design expenditure and debugging or maintenance expenditure on the completed game) However, expenditure is not core expenditure: If it is unpaid within 4-months of the accounting period end To the extent that it exceeds the subcontractor limit of 1m per game If the company is entitled to RDEC or has claimed R&D tax relief in respect of that expenditure Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

21 Summary of theatre tax relief Available to theatrical production companies: Liable to UK corporation tax Engaged in the production of qualifying dramatic productions or ballets Intended to be performed live before paying members of the general public or provided for educational purposes Where at least 25% of the core expenditure is on goods or services provided from within the EEA (There is no British certification requirement) Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

22 Theatrical production company The company must: Be responsible for producing, running and closing the theatrical production Be actively engaged in decision-making during the production, running and closing phases Make an effective creative, technical and artistic contribution to the production Directly negotiate for, contract for and pay for rights, goods and services in relation to the production Protective marking Unclassified, Protect, Restricted (delete as required)

23 Qualifying productions Ballet Other dramatic productions (where there is the playing of a role) All of the above must be presented live to paying members of the general public unless specifically for educational purposes (The Commercial Purpose Test) Touring companies must demonstrate their intention to tour by presenting at: 6 or more separate premises, or 14 performances in at least two separate premises Protective marking Unclassified, Protect, Restricted (delete as required) 3 23

24 Which productions are not regarded as theatrical? A dramatic production/ ballet is not regarded as a theatrical production if: The main (or one of the main) purposes, for which it is made is to advertise or promote any goods or services The performances are to consist of or include a competition/ contest Wild animals are included in any performance The production is of a sexual nature, or The making of a relevant recording is the main (or one of the main) objects, of the company s activities in relation to the production Protective marking Unclassified, Protect, Restricted (delete as required) 24

25 Qualifying expenditure Speculative development Production Running Closing Ongoing/ running costs - excluded Recasting and set changes All expenditure must be directly incurred in the theatre production and integral to the production process. The expenditure must have been paid or is the subject of an unconditional obligation to pay. The relief will allow direct costs in the following phases: Production (apart from finance and advertising, legal services or storage) Costs of substantial recasting and substantial set changes during the running stage, and Closing (where these are direct costs and not storage etc) Protective marking Unclassified, Protect, Restricted (delete as required)

26 How do the reliefs work? Both theatre tax relief and video games tax relief are based on the existing creative reliefs Relief is given by way of an additional deduction when calculating the taxable profits or losses of the separate theatrical or video games trade. The additional deduction is the lesser of: 80% of the total expenditure on producing the game or the theatre production, or The EEA expenditure The additional deduction will either reduce the taxable profits or create or augment a loss a proportion of which can be surrendered for a tax credit Protective marking Unclassified, Protect, Restricted (delete as required)

27 Administration of the tax reliefs Manchester Incentives & Reliefs Team

28 How to make a claim

29 A few things to consider in advance It is important to: Ensure a new company is incorporated early so that it will meet the qualifying company conditions in respect of a particular qualifying trade Consider the processes and record-keeping needed to facilitate a claim Identification of core expenditure and UK/EEA expenditure The timing of the claim(s) Loss restrictions Other tax and duty obligations Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

30 Statutory requirements Tax relief is claimed in the company s tax return: CT600 Version 2 (2008) tax return form Financial statements Corporation tax computation British certificate (except Theatre) Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

31 CT 600 Version 2 (2008) tax return form Entries should be made in the following boxes on the return (irrespective of the particular creative industries tax relief being claimed): R&D or Film Tax Credit (Box 87) R&D or Film Repayable (Box 89) Film (Box 167) R&D of Film Enh Exp (Box 101) Payable Film Tax Credit (Box 168) Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

32 Pre-completion & Completion period requirements Pre-completion period Interim British Certificate (except Theatre) Statement of: Planned total core expenditure Planned total UK/EEA core expenditure Completion period Final British Certificate (except Theatre) or a statement that the project has been abandoned Statement of: Actual total core expenditure Actual total UK/EEA core expenditure Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

33 Non-statutory information Additional information to support a claim: A breakdown of the expenditure on the production activities for all phases, including details of any methods of apportionment used and/or assumptions made Any other information relevant to the claim, for example: For film: Date principal photography completed For theatre: Statement that it is a Theatre tax relief claim, the production name and the intended/actual run dates and locations Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

34 Example: breakdown of expenditure Expense Incurred Paid Non-core Core UK/EEA Notes Producer 40,250 20,000 1,000 19,000 11,400 60% UK Director 30,500 14, ,000 8,400 60% UK Script 20,000 20,000 1,000 19,000 11,400 60% UK Talent 95,000 72, ,450 54,338 75% UK Sets 45,672 45, ,672 36,538 80% UK Props 28,422 28, ,422 24,159 85% UK Lighting 25,556 25, ,556 20,445 80% UK Entertaining 2,398 2,398 2, Excluded Etc Total Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

35 Illustrative example: The facts A company produces a TV drama series commissioned under a single agreement to be broadcast on commercial television The series comprises 13 episodes with total production costs of 20m of which core expenditure is 19.5m and all UK. Therefore the average core expenditure spend is 1.5m per episode Each episode has a slot time of 45 minutes. The pro-rated core expenditure per hour is therefore 2m The series (treated as a single television programme for tax purposes) is certified as a British programme The series qualifies as a relevant programme Income received from the commissioning broadcaster totals 18m Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

36 Illustrative example: The calculation Total income 18m Total expenditure 20m Pre-tax relief profit/ (loss) ( 2m) Additional deduction (Qualifying expenditure of 19.5m x 80%) 15.6m Post-tax relief profit/ (loss) ( 17.6m) The maximum surrenderable loss is the lesser of: The 17.6m available loss for the period, and The 15.6m available qualifying expenditure for the period The payable television tax credit (if maximum surrendered) is: 15.6m loss surrendered x 25% payable tax credit rate = 3.9m The available loss after the surrender is 2m Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

37 Contact Details Creative Industries Unit Tel (Administrative): General/ Policy Kerry Pope Des Ryan Simone Barnett Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

38 Summaries

39 Commencement Relief available for Film Films for which principal photography commenced on or after 1 January 2007 Television Accounting periods beginning on or after 1 April 2014 Video Games Accounting periods beginning on or after 1 April 2014 Theatre Accounting periods beginning on or after 1 September 2014 Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

40 Qualifying companies Liable to UK corporation tax & (otherwise than in partnership) Film & Television Production Companies Video Games Development Companies Theatre Production Companies Responsible for pre-production, principal photography, postproduction and delivery Actively engaged in production planning and decision-making during pre-production, principal photography and post-production Directly negotiate, contract and pay for rights, goods and services (Criteria relaxed for co-productions) Responsible for designing, producing and testing Actively engaged in production planning and decision-making during the design, production and testing Directly negotiate, contract and pay for rights, goods and services Responsible for producing, running and closing Actively engaged in decision-making during the production, running and closing Makes an effective creative, technical and artistic contribution Directly negotiate, contract and pay for rights, goods and services Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

41 Qualifying conditions Film Television Video Game Theatre Trade Film Relevant programme Intention/ Commercial purpose Certified as British UK/ EEA core expenditure Theatrical release at commercial cinema Television broadcast (including internet) Qualifying video game Supply to general public Yes Yes Yes N/A Minimum 10% used or consumed in UK Minimum 25% used or consumed in UK Minimum 25% on goods/ services provided from within the EEA Qualifying theatrical production Live performances to paying public or for educational purposes Minimum 25% on goods/ services provided from within the EEA Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

42 Relevant/qualifying or excluded activity Relevant/ Qualifying Television Video Game Theatre A drama (including comedy) or documentary with a slot length of more than 30 minutes and average core expenditure per hour of slot length of less than 1m An animation Excluded Advertisements etc Current affairs etc Entertainment shows Competitions Live performances Training programmes Not specifically defined A video game produced for the purposes of gambling, advertising or promotion A dramatic production (play, opera, musical or other dramatic piece) mainly intended to be performed live in which the performers wholly or mainly play roles A ballet A dramatic production or ballet: Made to advertise or promote goods/services Consisting of/including a competition or contest Using a wild animal Of a sexual nature Made mainly to be recorded Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

43 Core expenditure Core expenditure Non-core expenditure Film Television Video Game Theatre Pre-production Principal photography Post-production Development Exploitation Non-production Unpaid 4- months after end of period Pre-production Principal photography Post-production Development Exploitation Non-production Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Designing Producing Testing Initial concept design Debugging/ maintaining a completed game Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Producing Closing Exceptional running (e.g. substantial recasting) Ordinary running Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/

44 Payable tax credit Core expenditure Non-core expenditure Film Television Video Game Theatre Pre-production Principal photography Post-production Development Exploitation Non-production Unpaid 4- months after end of period Pre-production Principal photography Post-production Development Exploitation Non-production Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Designing Producing Testing Initial concept design Debugging/ maintaining a completed game Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Producing Closing Exceptional running (e.g. substantial recasting) Ordinary running Unpaid 4- months after end of period Qualifying for RDEC R&D tax relief received Protective marking Unclassified, Protect, Restricted (delete as required) HMRC NL Standard 05/08/