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The tax credit lifeline as theatres shut down

With London moving into tier four lockdown, the theatre sector was delivered another blow at what would usually be one of its busiest periods.

The West End’s pantomimes have had to close, joining those in other tier three areas such as Bristol, Birmingham, Manchester and Newcastle-Upon-Tyne. It has been a major hit to a sector that has already struggled throughout the coronavirus crisis. 

“To learn that the guidelines were changing again and that today we must close has been devastating for all of us,” wrote Michael Harrison, producer, joint owner and managing director of Qdos Pantomimes in The Guardian. “Let me be clear: I am very aware that we are in the middle of a pandemic. I am equally aware that the health and safety of audiences is of paramount importance but here is the issue: the advice to the theatre industry about reopening has been shambolic.”

ICAEW ran a webinar on Friday 18 December to talk through the impacts on the sector and one tax planning option that could ease the pressure: Theatre Tax Credits. 

Theatre Tax Credits support UK limited companies looking to produce dramatic productions or ballets for a live audience.

In basic terms, it involves claiming tax reliefs on the company’s Corporation Tax Return. Claims can be made cumulatively through the production phase. While most costs during production are not eligible for a claim, production costs such as recasting are. The costs of closing a production can be claimed. 

Preparing a claim initially involves enhancing qualifying expenditure to make the most of deductible costs. You can also look at the loss of trade (if applicable) and possibly surrender some of the company’s relevant trade loss a payable tax credit. This would be done at a standard rate of 20%, or 25% for a touring production (i.e. you intend to have either: performances at six or more separate premises, or at least 14 shows in at least two premises).

That additional deduction will be the lower of either: 80% of total core expenditure or the amount of expenditure on goods or services provided from within the EEA.

Rachel Hodge and Stephanie Martinez, Direct Tax Specialists at HMRC, discussed the Theatre Tax Credit in detail during the webinar, along with Jaivin Vora, Director of Creative Industries at Ernst and Young. They also discussed the major issues the sector faces at the moment, and what other help is available for businesses. You can listen to the on-demand recording here.

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