HMRC has now issued the long-awaited guidance on Theatre Tax Relief – http://www.hmrc.gov.uk/manuals/ttrmanual/theatre-tax-relief-manual.pdf.
For many who are currently working on their claims this is good timing, though for many it will come too late for this year’s claim.
There are no major surprises but at over 80 pages there is a great deal of information to absorb. It should help those making claims, but it does not answer all questions.
I feel it is useful to highlight areas of particular interest (the manual is in numbered sections which are referred to below):
1. For the purposes of TTR a production is separated into 4 phases: development; production; running; and closing – see 50030. These are key definitions, there is particular emphasis on the fact that claims cannot be made in respect of development expenditure (ie purely speculative expenditure), though this expenditure can be included in claims when the production is confirmed. The guidance raises a new concern. HMRC appear to distinguish between cost incurred purely to establish whether a production will go ahead and cost which is integral to the production. The assumption has been that once an organisation decides to proceed then all the development expenditure will be treated as development expenditure. HMRC give an example of a producer working on developing a show and suggest that only half the fee before the production becomes definite might be counted as qualifying expenditure. We will have to see how this is applied but it introduces a new issue to be considered. Organisations who producing the work themselves, rather than using an SPV, will be best confirming the green light date of the production as at an earlier date, rather than a later date, so as to minimise any unclaimable development expenditure.
2. The relevant trade in respect of a production commences on the earlier of the commencement of the production phase and receipt of income. This raises questions particularly in the context of the use of a subsidiary company for those who announce seasons well in advance. HMRC have confirmed to me that this is unlikely to give rise to an issue as ticket income is unlikely to be treated as received until the performance in question takes place.
3. There is no unequivocal statement as to the treatment of grants – HMRC have stated that only funding specific to the production would be treated as income of the production – see 20210.
4. Where a production is presented on tour on dates where some are for paying audiences and some are not then HMRC expect that in order to qualify 75% of the performance are intended to be for paying audiences. This section also includes a broad reference to performances for educational performances – ie not just in schools – which may be of significance to organisations with education programmes.
5. It is acknowledged that some insurances can be core expenditure – see 50130- as can some accountancy (and presumably legal) fees.
6. Please note the section on State Aid – see 40050. State Aid is a key consideration when putting reliefs such as TTR in place. This highlights the potential for organisations in receipt of Government funding (directly or indirectly) to be vulnerable to a claim of infringement of State Aid. In practice this is unlikely to be an issue but any uncertainty of this type is unhelpful.
7. Section 50040 discusses the allocation of expenditure between production and running phases. Sums paid for rights (ie non-performing rights such as film or merchandising rights) can be included as production expenditure it can only be included as core expenditure in a TTR claim if necessary for the live performance of the production. Similarly, if a lead actor’s fee is considered to be more than required for the production phase then this element (ie after excluding costs in respect of the running phase) may be ineligible as part of the core expenditure. These provisions and examples raise many questions and it would be worth organisations reviewing how contracts are structured. It appears from this that payments by way fees, if on account of royalties, could be treated as running costs. I hope that HMRC take a sensible approach and are concerned only where payments are clearly in excess of reasonable remuneration for the production phase of the production.
8. There is a helpful concession dealing with the initial period prior to September 2014 – see 55010. Though expenditure incurred before 1 September 2014 is not allowable in principle it will be where the expenditure for goods or services was incurred before this date but the goods or services were not used before 1 September 2014.
9. Please note the useful section on filling out a claim – see 60010. Also included is the information HMRC expects to be included in a claim.
10. There is a section on Not for Profit Organisations – see 70000. The manual emphasises that an organisation setting up a wholly-owned subsidiary without setting up properly the subsidiary as the production company for TTR purposes will mean the subsidiary will not be able to make a claim.
11. There is no specific guidance on co-productions – see 70040.
Generally there are examples and illustrations which should narrow down the scope for misunderstanding.
This update sets out the points that I feel are of broad interest but is no substitute for reading the manual yourself!
Sean Egan Consultants Limited
sean@seaneganconsultants.com / 07879 228221
29 October 2015
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