New tax relief for theatre productions

Matthew Wyatt FCA explains the tax credit scheme that has been made available for theatrical productions.

HM Revenue & Customs (HMRC) have added recently a new tax relief specific to theatrical production companies which came into effect from 1 September 2014. It is called Theatre Tax Relief and is part of a list of other "creative industries" that benefit from tax schemes including:

• Films
• Animation
• High end television
• Video games

The aim of this initiative is to tempt investors and therefore more money into theatre productions as well as high profile producers and directors. When a similar scheme was introduced for the British film industry in 2007, it resulted in an abundance of productions being made in the UK. 

How does it work?

The tax credit works either by claiming a deduction against your company's corporation tax liability or the tax relief can be surrendered for a cash payment from HMRC in the event of a loss making production. The relief is applicable to 20% of total qualifying pre-production costs (25% for touring productions) which can include accommodation, directors fees, set design and costumes to name a few. Of note, the payment isn't linked to having a corporation tax bill so both commercial and publicly funded productions can benefit.   

The Guardian uses the example of The Scottsboro Boys, a critically acclaimed play that was moving from the Old Vic to the West End in October. The cost of transferring the production to a new site in the Garrick theatre was £1.2m. However, the tax relief means a potential refund of up to £120,000.  

A question of qualification

To qualify you need to put on a dramatic production or ballet. A dramatic production is defined as a play, opera, musical or dramatic piece in which the actors, singers, dancers and/or other performers deliver their performances wholly or mainly through the playing of roles.  Each performance has to be to a live audience and live performances have to be the main objective or one of the main objectives of the company's activities in relation to the production. Interestingly, circus productions also qualify so long as they don't make use of wild animals. 

In the case of a touring production, the rules are that there has to be an intention at the beginning of the production to do performances in at least 6 different premises or, to do performances in at 2 different premises and hold a total of at least 14 shows.

The following count as general reasons for exclusion:

• The purpose of the production is to promote or advertise goods and services
• There is a competition or contest as part of the performance
• The production is of a sexual nature 

Other practical matters for consideration

• Charities will need to consider the use of a trading subsidiary company in order to benefit from the relief. Guidance from HMRC is expected on this in due course.
• Where you have a co-production, you will need to set up a single production company
• The tax relief is claimed through the production company's tax return
• HMRC expect to turn claims around within 28 days of receipt

For further information and guidance on this matter please contact Matthew Wyatt.

The content of this post is up to date and relevant as at 05/11/2014.

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