Following consultation in the spring, the government has introduced a new tax relief for theatre production companies as a Report Stage amendment to Finance Bill 2014. The relief is based on the existing film, television and video games tax relief model and will benefit a wide range of productions, including plays, musicals, opera, ballet, dance and some circuses.
From 1 September 2014, eligible companies will receive an additional tax deduction for qualifying expenditure, which the company can either offset against taxable profits or surrender any eligible losses to HMRC in exchange for a cash tax credit worth up to 25% of qualifying expenditure.
Only expenditure directly incurred in theatre production and integral to the production process will qualify. This includes speculative development expenditure once the decision to proceed with the production has been taken. It will also include:
script fees and development;
casting;
rehearsal costs;
labour and material related to props, costumes, sets and backdrops;
equipment hire;
visual and sound effects;
substantive recasting and substantive changes to stage sets; and
costs of striking sets.
Other than substantive recasting and substantive changes to sets, running costs – including cast and crew fees, direction and production, theatre costs/rent, maintenance, moving costs, travel and subsistence – will not qualify for relief.
In order to qualify for relief, at least 25% of core expenditure on the development of the production must be EEA expenditure but there is no requirement for performances to take place in the UK or EEA.
The cash tax credit will be payable at the higher rate of 25% for touring productions and 20% for all other qualifying productions. A production will qualify as touring if the theatre production company has an intention to present:
at least 14 performances in two or more different premises; or
performances in six or more different premises.
It is important to note that the relief will not apply where the theatre production is carried on in partnership, and there will be no benefit if the costs of developing the theatre production are not accounted for in the profit and loss account of the theatre production company. Changes to current funding and operating models may therefore be required for some parts of the theatre industry to benefit from the relief.
Charitable theatre companies will qualify for the relief but, in order to receive the full benefit, they may need to establish a separate trading subsidiary to act as the theatre production company.
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How the new theatre tax relief will work
Following consultation in the spring, the government has introduced a new tax relief for theatre production companies as a Report Stage amendment to Finance Bill 2014. The relief is based on the existing film, television and video games tax relief model and will benefit a wide range of productions, including plays, musicals, opera, ballet, dance and some circuses.
From 1 September 2014, eligible companies will receive an additional tax deduction for qualifying expenditure, which the company can either offset against taxable profits or surrender any eligible losses to HMRC in exchange for a cash tax credit worth up to 25% of qualifying expenditure.
Only expenditure directly incurred in theatre production and integral to the production process will qualify. This includes speculative development expenditure once the decision to proceed with the production has been taken. It will also include:
script fees and development;
casting;
rehearsal costs;
labour and material related to props, costumes, sets and backdrops;
equipment hire;
visual and sound effects;
substantive recasting and substantive changes to stage sets; and
costs of striking sets.
Other than substantive recasting and substantive changes to sets, running costs – including cast and crew fees, direction and production, theatre costs/rent, maintenance, moving costs, travel and subsistence – will not qualify for relief.
In order to qualify for relief, at least 25% of core expenditure on the development of the production must be EEA expenditure but there is no requirement for performances to take place in the UK or EEA.
The cash tax credit will be payable at the higher rate of 25% for touring productions and 20% for all other qualifying productions. A production will qualify as touring if the theatre production company has an intention to present:
at least 14 performances in two or more different premises; or
performances in six or more different premises.
It is important to note that the relief will not apply where the theatre production is carried on in partnership, and there will be no benefit if the costs of developing the theatre production are not accounted for in the profit and loss account of the theatre production company. Changes to current funding and operating models may therefore be required for some parts of the theatre industry to benefit from the relief.
Charitable theatre companies will qualify for the relief but, in order to receive the full benefit, they may need to establish a separate trading subsidiary to act as the theatre production company.
