Similar to Land Remediation relief (which is part of Capital Allowances), Film Tax Relief and R&D tax credits, Theatre Tax Relief will enable the investors to such a scheme to surrender losses to the treasury in exchange for a tax credit and therefore cash refund.
The UK is home to some exciting and innovative theatre companies producing ground breaking new productions. It’s crucial that these continue to thrive across the UK says Chancellor of the Exchequer George Osbourne.
He wants to make sure our theatre producers and performing arts can continue to entertain and capture audience’s imaginations, not just in London’s West-End but in our regional theatres.
Following the Autumn Statement 2013 announcement that the government will introduce a new tax relief for theatre productions we have been working closely with the sector and its supporters to design an effective and well-targeted policy.
Theatre tax relief will be available at 25% for qualifying touring productions and 20% for other qualifying productions from September 2014. Relief will be available for a wide range of theatre and performance, supporting plays, musicals, opera, ballet and dance.
The creative sector reliefs have shown how targeted support can make a real difference not only in terms of promoting economic activity, but also in terms of promoting British culture and the way the UK is viewed internationally. These schemes have been highly successful. Investment in the UK film production sector reached over £1 billion in 2013 and, in the last nine months, over
£276 million of investment was made in high-end television and animation programmes.
Like the other creative sector reliefs our aim is to provide a generous support that encourages investment in production in a way that ensures the sustainability of our theatre and live performance in the UK.
Key features of theatre tax relief will be:
• Provide a per production tax relief giving an additional deduction for corporation tax purposes that can also be surrendered for a payable tax credit.
• Support plays, musicals, dance, ballet and opera but exclude sexual entertainment, and shows with a competition element.
• Offer the payable tax credit at a rate of relief of 25% for qualifying touring productions and 20% for other qualifying theatre productions
The following is a simple worked example to illustrate how a tax credit could be calculated
for a theatre production company.
A company produces a non-touring theatre production. The total expenditure incurred is £4.5m of which £4m is all core expenditure.
- Total income £3.5m
- Total expenditure (£4.5m)
- Pre-tax relief profit/ (loss) (£1m)
Enhanceable expenditure (qualifying expenditure of £4m x 80 per cent) £3.2m
Additional deduction on enhanceable expenditure (100 per cent rate of enhancement x £3.2m)
Post-tax relief profit/ (loss) (£4.2m), the surrenderable loss is the lesser of The post-tax relief trading loss of £4.2m; and The enhanceable expenditure of £3.2m. The theatre production company can surrender any amount up to £3.2m of losses. The amount of credit due based on a payable credit rate of 20 per cent1 multiplied by the loss surrendered (assuming the maximum of £3.2m is surrendered) is: 20 per cent x £3.2m = £0.64
This demonstrates the variety of HMRC’s legitimate Tax relief strategies.