Understanding UK Theatre Tax Relief: Rates, criteria and benefits
Some theatre productions in the UK are eligible for Theatre Tax Relief (TTR). In case you’re unaware, Theatre Tax Relief can increase the total expenditure that is allowed as a tax deduction on specific goods or services, and if your company takes a loss, this can be surrendered for a payable tax credit. Theatre Tax Relief can be extremely beneficial for production companies, so it’s certainly worth exploring if you operate in the creative industry.
In this article, we’ll look at Theatre Tax Relief in much greater detail, paying close attention to Theatre Tax Relief rates, how you can qualify for Theatre Tax Relief, and what the benefits are for production companies. If you’re involved with the world of theatre and would like to learn more, Moore Kingston Smith is here to help you get on track.
What is Theatre Tax Relief in the UK?
Following the Autumn 2021 Budget, Theatre Tax Relief was increased in the form of theatre tax credit rates, which came into effect on 27 October. On this day, the rate for touring productions increased from 25% to 50%, while the Theatre Tax Relief rates for non-touring production companies increased from 20% to 45%. This reflects the logistics involved in touring production companies and the assistance they need in order to deliver in multiple locations.
In April 2023, these Theatre Tax Relief rates decreased to 35% and 30% for touring and non-touring production companies respectively. And in April 2024, these Theatre Tax Relief rates are set to decrease further, down to 25% to 20% respectively, back down to what they were before the Autumn Budget changes in 2021. This may be a result of the fact that theatre production companies are now enjoying greater revenue and attendance following the easing of pandemic-induced restrictions.
We’ve put together a top-line explanation of what the core components of Theatre Tax Relief are, and what they mean for touring and non-touring production companies:
- Theatre tax relief applies to production companies that are dramatic in nature, and whose shows are intended to be performed either commercially or for educational purposes.
- To be eligible for these Theatre Tax Relief rates, at least 25% of the total production costs of the theatrical production must relate to activities in the European Economic Area (EEA).
- Theatre tax relief only applies to a UK company or an overseas company with a UK branch or tax presence. Partnerships and individuals cannot claim the relief.
Are you eligible? Understanding Theatre Tax Relief Criteria
To qualify for Theatre Tax Relief, theatre companies must either produce a dramatic piece or a ballet. A dramatic piece can be a live play, an opera or a musical show, or another dramatic piece in which actors, singers, dancers or other performers largely play a specific role.
Here are some simple qualifying criteria:
- Each dramatic piece or ballet must be intended to be given to an audience of at least five members of the general public.
- For production companies, tickets must be ticketed separately. If food or show material is included in the ticket piece, and it will be consumed/used during the show, this will not prevent it from being considered as being separately ticketed. As long as you can appropriate a portion of the total price to the show itself, you should be okay.
- Similarly, production companies looking to qualify for Theatre Tax Relief should see a significant proportion of the total show earnings come from ticketed sales from paying members of the audience.
- In addition, the live dramatic piece or ballet should be the centrepiece of the overall performance. If the show is being recorded for television, radio, or film, the production company may not qualify for Theatre Tax Relief rates, even if there is a live audience present.
Even if a classical ballet production does not meet the above criteria, it may still qualify for Theatre Tax Relief. However, for contemporary ballet, this will be dependent on how traditional techniques are incorporated into the performance.
For a production company to qualify for Theatre Tax Relief during a particular accounting period, it must be intended that all, or a high proportion of, the live performances that it proposes to run will be either:
- To paying members of the general public, or
- Provided for educational purposes, e.g. performances in schools.
With regards to the European Economic Area (EEA) stipulation, production companies seeking to be eligible for Theatre Tax Relief must have at least 25% of the core expenditure spent within the EEA. This includes the cost of performing in the European Economic Area (EEA) or when buying goods from EEA suppliers.
The financial upside: What Theatre Tax Relief means for you
If you’re wondering how Theatre Tax Relief works and what it can mean for your production company, you’re in luck. The amount of Theatre Tax Relief that you can receive is related to your total expenses, and whether you are eligible as per the criteria above.
The financial upside of Theatre Tax Relief can be huge, allowing businesses to dramatically reduce the amount of corporation tax that they’re liable for. With many production companies running with very narrow margins, this relief can make all the difference, which is why procurement and bookkeeping is such crucial aspect of operations and management. This is something that you can discuss further with a financial advisor or accountant, but having a sound understanding is still key.
By understanding what your liability is and how much Theatre Tax Relief your production company should be eligible for, you can better forecast future financials. It should allow you to plan future performances with greater confidence and have a better handle on your cash flow and expected expenses, especially when it comes to your annual corporation tax. This is something you should be able to anticipate, so you aren’t left with a bigger-than-expected bill.
Types of expenditures that qualify for tax relief
Core expenditure is EEA expenditure incurred by the production company when producing a theatrical production (including pre-trading expenditure) and closing the production. It also includes exceptional production costs incurred after the first live performance, such as substantial recasting or set redesign.
It does not include costs relating to developing the production, ordinary running activities (such as legal advice and storage costs), or the costs of exploiting the production. If you’re unsure of how you can distinguish between development and pre-production expenditure, HMRC can offer additional support.
Development expenditure is speculative and undertaken to determine whether the dramatic piece or ballet performance is a commercially feasible project. Pre-production expenditure is incurred on activities undertaken in the knowledge that a decision has been taken for the production to go ahead.
When carrying out the calculations, costs only qualify as core expenditures if they are paid for within four months of the end of the period of accounting for which the total tax relief is claimed.
If your business takes a loss over the reporting period, you could be liable for theatre tax credit, which will still relate to the qualifying goods or services you have bought.
The total losses can be used in one of two ways:
- The entire amount of the total losses can be set against the income of the production company;
- A proportion of the total losses up to a maximum amount, equal to the qualifying expenditure can be surrendered to HMRC for a payable tax credit (the “surrenderable loss”).
The amount of the “surrenderable loss” for any accounting period is the lower of:
- The amount of the trading loss in the period (taking account of the additional deduction); and
- The enhanceable expenditure for that period (i.e. the lesser of core EEA expenditure or 80% of total core expenditure) less any amount surrendered in previous periods.
How to successfully claim your Theatre Tax Relief
When claiming Theatre Tax Relief, a production company can claim relief in instalments at the end of each of its accounting periods during the production of a theatrical production, rather than only on completion. This is useful for theatrical productions that have long production schedules, and it may also be beneficial for cash-flow purposes.
Sound bookkeeping is essential for any business wanting to make sure they can claim TTR. You will need to ensure that you have a detailed accounting of all expenses, from domestic goods or services to supplies from the European Economic Area (EEA).
This is something you can discuss with your accountant or financial advisor as they will be able to provide accurate guidance that relates to your unique production company. You can also reach out to Moore Kingston Smith for more information. Our team are ready and willing to help however they can, so you can better understand how Theatre Tax Relief works and what the benefits of this could be for your production company.
Partnering with Moore Kingston Smith: Making tax relief hassle-free
If you’d like to better understand Theatre Tax Relief, theatre tax credit, or how creative industry tax reliefs can help your production company, get in touch with a member of the Moore Kingston Smith team. We’re here to help you understand the finer details so you can protect your business by having a much clearer view of your future.