So more details have emerged about the new tax breaks on offer to theatre:
Under this new relief, a production company will be able to claim tax relief on costs on a per-production basis. This relief will be at two different rates: at 25% for touring productions and 20% for others from September 2014. The calculation of this is as a percentage of eligible capitalised expenditure (broadly one takes the capitalisation of the project, and the eligible portion comprises most categories excluding marketing and advertising, running costs, contingencies and any finance costs). The tax relief is then applied to 80% of this eligible expenditure. The mechanism for claiming the relief will be covered in the forthcoming consultation.
Both publicly funded and commercial productions will benefit, either by offsetting the relief against corporation tax or through a cash credit for the equivalent amount. We have been working hard to ensure that this will work for productions mounted by all sorts of organisations, including those in the ‘subsidised’ sector. This relief is separate from other forms of funding currently awarded to the arts sector.
The majority of theatre companies that receive funding from Arts Council England are charities and are not usually liable for corporation tax. It is envisaged that in order to benefit from the tax relief a charity will create a trading subsidiary that is liable for corporation tax through which it will make the production and benefit from any relief. There will be guidance from HMRC in due course.
So you set up a subsidurary – that will be liable for a form of tax you didn’t previously need to pay. In order that the subsidiary can reclaim 80% of the tax which you wouldn’t have been paying in the first place, which means you’ll be paying 20% more tax than you would have been previously!
I don’t know why I’m surprised that this government is suggesting a headline grabbing – yet fundamentally flawed idea. A consultation developed by HMRC with SOLT, UK Theatre, an industry working group and Arts Council England is going to be published soon. There will be the opportunity for wider industry members to respond to the consultation before legislation is passed in September 2014 – considering the previous track record of ACE and the Tories when it comes to new initiatives – I’d urge everyone to have a look at the consolation and throw in their tuppence worth.
Here’s the full explanation of the proposal from Julian Bird of SALT.