In this theatre tax relief calculation example, we consider an average theatre production and the types of costs incurred. These range from staff, to venue, to freelance artists and all are incurred at different times of the production’s lifecycle.
For ease of illustration, let’s assume the costs incurred on a theatrical performance in the accounting year are:
| Category | Cost |
|---|---|
| Venue hire | £ 20,000 |
| Costumes | £ 5,000 |
| Set Designer | £ 15,000 |
| Salaries | £ 200,000 |
| Makeup artist pre-production | £ 20,000 |
| Marketing and promotion | £ 10,000 |
| Total expenditure | £ 270,000 |
This gives a total expenditure of £270,000. However, TTR can not necessarily be applied to these entire costs.
As with all things tax, there are several steps and conditions to meet:
Step 1. Determine which expenditure is ‘theatrical production expenditure’ or ‘Core Expenditure’ e.g. the activities involved in developing, producing, running, and closing the production.
Any costs that are not within Step 1 are likely to be normal running expenses (e.g. expenses incurred from the first performance onwards) and not allowable for calculating the TTR claim.
Let’s assume, that the following percentages from the total costs relate to Step 1 costs.
| Category | Tot.Cost £ | % Step 1 | Step 1 Cost £ |
|---|---|---|---|
| Venue hire | 20,000 | 20 | 4,000 |
| Costumes | 5,000 | 60 | 3,000 |
| Set Designer | 15,000 | 100 | 15,000 |
| Salaries | 200,000 | 50 | 100,000 |
| Makeup artist pre-production | 20,000 | 20 | 20,000 |
| Marketing and promotion | 10,000 | 80 | 8,000 |
| Total expenditure | 270,000 | 150,000 |
Step 2. Determine how much of the Step 1 expenditure is incurred in the EEA. By EEA expenditure we are looking to identified the costs of goods or services supplied and carried out within the EEA. This value is needed to determine the element of core expenditure to be included in the calculation for the claim.
If a cost is incurred both in the EEA and not, then a reasonable apportionment must be made.
Let’s assume here all of the cost incurred are from within the EEA. Being £150,000 allowable EEA Core Expenditure.
Step 3. Determine the value of the expenditure to be the foundation of the calculation. Legislation states that this value is
- 80% of the Total Qualifying expenditure (Step 1) 150,000 x 80% £120,000 or if less
- The total EEA core expenditure (Step 2) £150,000
Therefore, the total qualifying expenditure in this example is: £ 120,000
Step 4. Apply the expenditure from Step 3 to the company’s tax position in respect of the production.
If profitable an additional deduction of £120,000 will be set against profits, reducing the company’s tax liability by £22,800 in 2018.
If loss making the additional deduction creates a larger loss for the company which can be surrendered for a cash payment. The maximum available credit in this instance will be:
- Touring productions: 25% x Step 3 = £30,000
- Non-touring productions: 20% x Step 3 = £24,000
