Theatre Tax Relief – November 2014: where are we now?
When I last wrote here on this topic in August, I expected that by now the position would be much clearer than it is. The UK Theatre ‘roadshow’ has been and gone and the expectation was that HMRC guidance would be out by now.
Though the position is clearer than it was, it is by no means clear and the hope is that HMRC guidance will be out in the New Year but there are no promises as to the date. Organisations are in the position where significant potential claims for TTR could be jeopardised by a lack of clarity.
Please do not misunderstand me, HMRC are doing their best – the timescale for implementation was not of their making and I am sure everyone in the industry would prefer the measures in sooner rather than later even if there are teething troubles. The Creative Industries Unit in Manchester (which will deal with TTR applications and also deals with Film Tax Relief) is helpful and practical but do please bear in mind that they are on a learning curve too and have not dealt with theatre production before (the no is 03000 510191). For instance, it might have been helpful for them to have known that the bulk of the applications from the subsidised sector will be made in respect of financial years ending on 31 March rather than spread throughout the year as with the Film Tax Relief.
The current efforts are focused in coming up with practical arrangements through which theatres and theatre producers can make claims but which do not give rise to major additional administration or additional cost.
For charities there are two options – either for the charity to apply for the credit or to set up a trading subsidiary to produce the shows and make the application. In principle HMRC accept that a charity can set up a subsidiary, where the subsidiary undertakes the production and sub-contracts the operational elements to the charity. However, the subsidiary needs to be the entity taking responsibility for all material decisions – not only in terms of paperwork but also in practice. Charities and subsidiaries may be asked to provide minutes of meetings as evidence of the position. This route is attractive in that the charity can be the contracting party though of course there is nothing to prevent the subsidiary from contracting cast, creative team, suppliers and other production expenditure.
I am often asked the date by which charities need to have concluded agreements with subsidiaries and on co-productions. There seems not to have been any specific guidance at the UK Theatre roadshow and in fact there seems to be various different opinions expressed – whether the date should be before expenses are incurred, commencement of rehearsals or performances. I am seeking clarification from HMRC on this and other questions. This issue is particularly important as if a charity gets it ‘wrong’ a claim for TTR may be ruled ineligible. The answer is complicated in that so long as the producing entity is principally responsible for the production as a whole then expenditure incurred by the charity before the subsidiary was set up can form part of a TTR claim. This is one of those areas where clarification is necessary so everyone knows where they are.
It is helpful that HMRC have confirmed that grants will not count as income to the extent they are not production specific – this should ensure that NPO grants are excluded but it may be that G4A grants and grants from trusts and foundations must be included. This is relevant in the calculation of whether the production has made a profit or loss. Most (and in fact probably all) TTR claims will be in respect of productions which for TTR purposes make a loss or break even.
I hope this helps clarify some of the immediate issues. These comments are necessarily general and specific advice should be sought for specific situations.
SEAN EGAN
Sean Egan Consultants Limited
seanwdegan@btinternet.com / 07879 228221
17 November 2014
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