Credit where credit s due UK theatre tax relief
A large majority (76%) of the UK population has been to at least one theatre show (including plays, musicals, opera and dance performances) in the past three years, with 63% attending once in the past year more than music concerts (53%) and sporting events (47%). Source: State of play: theatre UK published by Ticketmaster, September 2013
Crediting the UK theatre industry Theatre, one of the oldest and most familiar art-forms in the world, spans centuries, societies and customs. Its place in society, its structure, content and funding have all evolved and changed with the times. Despite a decline in public funding, on which the UK theatre sector is heavily reliant, theatre is a big part of people s lives, and is a big driver of UK tourism. The industry hopes that the tax relief will be attractive to potential investors, helping to boost investment in new shows, especially riskier productions. What is theatre tax relief? Theatre tax relief is a corporation tax relief that enables qualifying companies to either: claim an enhanced deduction, thereby reducing taxable profits reported from a theatre production surrender a taxable loss (should one arise as a result of the enhanced deduction) in return for a tax credit.
Who qualifies? To claim theatre tax relief, the following criteria need to be met: the company making the claim is a theatre production company the production is theatrical, meaning it is either a dramatic production (which can include a circus show) or a ballet the presentation of live performances is one of the main objects of the company s activities in relation to the production each performance in the proposed run of the production is to be performed in front of a live audience the production involves the actors, singers, dancers and other performers giving their performances wholly or mainly through the playing of roles the production s main objective must not be the advertisement or promotion of goods or services the performance must not consist of, or include, a competition or contest, wild animals or be of a sexual nature the company is either incorporated in the UK or has a UK permanent establishment which falls within the charge to UK corporation tax at least 25% of core expenditure* is incurred on goods or services provided from within the European Economic Area (EEA). * Core expenditure covers expenditure on producing and closing the production, but excludes costs relating to financing, marketing, legal services, storage and ordinary running costs of the production.
To qualify as a theatre production company, a company must: be responsible for producing, running and closing the 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, contract and pay for rights, goods and services relating to the production. While theatre tax relief was only introduced from 1 September 2014, it is available to a theatre production company which commenced production of a theatrical production before that date. However, only expenditure used or consumed after that date is eligible for an enhanced deduction.
Tax relief available There are two options available to theatre production companies in terms of how they choose to benefit from theatre tax relief. These are: An enhancement claim can be made in respect of the qualifying expenditure. This has the effect of either reducing taxable profits or increasing tax losses available to be carried forward. The qualifying expenditure is EEA core expenditure, limited to a maximum of 80% of all core expenditure. An amount equal to the lower of the trading loss, EEA core expenditure and 80% of all core expenditure can be can be surrendered in return for a tax credit. UK core expenditure must equal at least Maximum amount of core expenditure claimable Enhancement rate on UK core expenditure Maximum possible enhancement claim, as a percentage of core expenditure Tax credit rate Maximum possible tax credit, as a percentage of core expenditure
Points to note The amount of core expenditure claimable is limited to the lower of 80% of total core expenditure and the actual EEA core expenditure. The maximum possible enhancement claim and tax credit relate to the scenario where 80% or more of the total core expenditure is incurred in the EEA. Non-touring production Touring production 25% 25% 80% 80% 100% 100% 80% 80% 20% 25% 16% 20%
The tax relief process Tax relief is claimed via the completion of the company s corporation tax return. This tax return should be submitted within 12 months of the end of the company s accounting period, but there is a further 12 month period during which it can be amended. Relief can be claimed on an interim basis, enabling tax credits to be received in instalments and some of the tax credit to be received before the production is complete. Theatre tax relief and not for profit organisations profit Not for profit organisations are able to access theatre tax relief. Although the claim needs to be made by a UK company via a corporation tax return, the tax credit is a standalone payment that does not need to be offset against tax due or paid. Even if a theatre company does not normally pay corporation tax, it could be eligible to receive a tax credit. Although the use of a special purpose vehicle trading subsidiary of a charity is not essential, it can be an efficient means of claiming theatre tax relief to avoid a full charity return needing to be submitted, and HMRC are used to seeing special purpose vehicles used in relation to other creative industry tax reliefs. However, consideration would need to be given as to how a charity operates its trading subsidiary and how a tax credit received by a trading subsidiary might best be utilised.
Why choose Crowe Clark Whitehill Our specialist team provide expertise to a range of theatre companies and can assist with all aspects of the UK theatre tax relief. Services we can provide preparation of accounts and corporation tax returns to claim UK theatre tax relief dealing with HMRC queries advice on discounting tax credits advice on maximising UK theatre tax relief advice for not for profit organisations on how to best go about obtaining theatre tax relief.
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