UK and European expenditure changes
Being over halfway into 2025, many will be thinking about tax returns for 2025. For companies making Theatre Tax Relief claims in their tax returns, it is important to consider a significant change on the UK and European expenditures from 1 April 2024, which is to be reflected in the 2025 tax returns.
Prior to the changes
To be a qualifying production, at least 25% of core expenditure needs to be ‘European expenditure’, i.e. expenditure incurred on qualifying goods and services provided from within the UK or EEA.
From 1 April 2024
For accounting periods ending on or after 1 April 2024, the UK expenditure condition will replace the European expenditure condition for Theatre Tax Relief claims.
To be a qualifying production, at least 10% of the core expenditure must be UK expenditure, and tax credit calculations will consider UK rather than European Expenditure.
As explained below, there has also been a subtle but important change in how the location of expenditure is determined, with a shift from ‘provided from’ to ‘used or consumed in’.
UK expenditure definition
UK expenditure is: ‘expenditure on goods and services which are used or consumed in the UK’.
The ‘used or consumed’ test focuses on the recipient or customer.
It does not focus on the supplier of goods and services or the nationality of those providing the goods and services.
To determine whether an item of expenditure incurred in relation to a theatrical production should be treated as UK expenditure, it is necessary to establish:
- the nature of the specific goods or services in question; and
- the place where the recipient uses or consumes those goods and services.
What is considered a UK expenditure
Rehearsals
The cost of rehearsals held in the UK would be UK expenditure.
Any sets, props and costumes used in those rehearsals would also be UK expenditure (regardless of where the goods in question were sourced from).
Royalties
Royalties paid for production activities taking place in the UK are UK expenditure.
Fees paid to staff
Fees paid to staff are based on where their services are performed, not where they are resident for tax purposes.
Fees paid for production activities in the UK will qualify as UK expenditure, but fees paid for production activities abroad will not.
Where production activities are split between the UK and overseas, fees paid should be apportioned on a just and reasonable basis.
Transition rules
If a production enters the production phase before 1 April 2024, the production company can elect to continue following the European expenditure rule until 1 April 2025. However, the UK expenditure requirement will apply to costs incurred from 1 April 2025.
For the purposes of this rule, a production enters the production phase when core expenditure is first incurred on it.
If a company’s accounting period straddles 1 April 2024, it would need to calculate the European expenditure and UK expenditure separately before and after 1 April 2024.
How Moore Kingston Smith can help
Contact our creative tax team to find out more about this rule change. We will be publishing further articles on how this rule change will affect Museum Gallery and Exhibition Tax Relief claims and Orchestra Tax Relief claims.
