Theatre Tax Relief – Update and focus on International Touring
Now that claims for Theatre Tax Relief are being paid by HMRC, it is a good time to look the current position and any particular points to look out for. Also, I feel it is worth looking in particular at the benefits of Theatre Tax Relief for companies involved in international touring. There is no HMRC guidance as yet though my recommendation is that companies do not wait for it to be issued before making a claim. If there are particular issues that need clarifying HMRC are prepared to answer questions put by you or your advisers.
Companies with year ends of 31 March will have been looking at the possibility of making a claim for Theatre Tax Relief for 2014/15, but if you have not it is not too late. As noted in past updates, charitable companies can make claims and even if you have made no special arrangements there is an opportunity to make claims for expenditure incurred on or after 1 September 2014 on productions which qualify for the relief.
There are two particular issues applicable to a claim for the 2014/15 financial year. Firstly, you will need to identify when core expenditure that is incurred. Even if payments have been made before 1 September it may be that under the legislation it can still form part of a claim. Secondly, many productions will straddle the 2014/15 and 2015/16 financial years and you will need to allocate income and expenditure relating to the production as between those years. For expenditure, only when final payments are made with no outstanding conditions will the expenditure be treated as incurred. These calculations can be complicated and it is worth seeking advice as to the correct treatment. The treatment of income is different. Income needs to be estimated not on what income has actually been received but in proportion to the estimated expenditure. So if, say, 30% of the whole production costs are incurred in the 2014/15 financial year and the remaining 70% in the 2015/16 financial year then the estimated income of the production (including box office, co-producer fees and production specific income) should be allocated between the financial years in the proportion 30/70. For these purposes expenditure includes all costs of the production including non-core costs such as running costs and marketing costs. This is likely to be an area on which you will need to take advice.
For those companies who produce or co-produce productions which tour internationally Theatre Tax Relief is particularly helpful. There are two main reasons. Unlike the Film Tax Relief, there is no ‘Cultural Test’ and so long as a production qualifies as a ‘Theatrical Production’ it will in principle be eligible for Theatre Tax Relief irrespective of content. The criteria are wide including plays, opera, dance and Circus (subject to specific limitations) and can include puppet theatre performances and mime. Secondly, there is no requirement that the performances or any expenditure takes place in the UK. It is a requirement that at least 25% of the core expenditure is incurred in the EEA (which is the EU plus Iceland, Liechtenstein and Norway). This is a low threshold and means that shows rehearsing and whose sets are built in, say, Poland or Germany will qualify in the same way as if the expenditure was in the UK. Also, the amount of any claim will, in general only reduce if more than 20% of the core expenditure is incurred outside the EEA – again in my opinion this is a helpful provision. Lastly, it should be noted that the core or ‘qualifying’ expenditure that is the basis of any claim specifically includes the costs of closing the production – such as the ‘get out’ and transportation of the set, performers and others involved in the production back to the UK. For large shows touring worldwide these closing costs may be substantial.
Structuring international productions will be important as Theatre Tax Relief only applies when the UK entity is the production company and in control of all aspects of the production. Where there are international co-production partners, such as festivals or venues, companies will need to look at the nature of those deals to ensure they are the production company. For deals that have yet to be concluded, whether or not the production will qualify for Theatre Tax Relief should be borne in mind.
Sean Egan Consultants Limited
email@example.com / 07879 228221
10 June 2015
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