Eligible expenditure: leading actors and voice artists
S1216AH, S1216CG Corporation Tax Act 2009
The amount of Television Tax Relief (TTR) to which a Television Production Company (TPC) is entitled in respect of an animation is determined by the amount of core expenditure (see APC50010) which is used or consumed in the UK.
This can present particular issues in relation to payments for services rendered by principal actors or other key personnel. In some cases this will primarily relate to their time provided. But in some cases it might be that the costs could be considered to relate to the promotion of the programme.
This issue occurs more obviously with film, but where there is significant merchandise and other commercial exploits attached to the programme, this may easily occur.
The facts of each case should be considered carefully, but any apportionment must be made on a fair and reasonable basis.
Actors paid mainly by reference to time
Where payments to actors or other artists are determined mainly by reference to the time spent or committed to the programme, it will be reasonable for costs to be apportioned on a time basis.
Costs may need to be apportioned across rehearsals, principal photography and post-production, depending on where these activities take place. In that case, it would be fair and reasonable to apportion on the basis of time spent or committed.
Leading actors whose payment is largely independent of time
Where the amount paid to a well-known actor is largely independent of the time spent or committed to working on the programme, it is reasonable to regard the actor as primarily being paid for their acting performance and for recording their voice during principle photography. Some of this fee will be in respect of pre-production rehearsals and this amount will need to be apportioned on a fair basis. They may also devote time to promotion and publicity for the programme and they may be contractually obliged to do so.
For live action programmes it is often reasonable to allocate the whole of the fee to acting services consumed during principal photography and disregard any incidental value derived from the time spent preparing for recording or promoting the programmes.
However, animations require less time and commitment to a production than a comparable live action programme. Where large fees are paid that seem disproportionate, it may be reasonable to conclude that some element of the fee is paid for promotional purposes where the actor is contractually required to spend significant time on promotion and publicity for the programme.
This might be where their contribution is mainly one of ‘celebrity’ or ‘association’ and is used for commercial exploitation.
Where an actor’s fees include payments for travel and subsistence or any other personal costs incurred during promotion of the programme, the additional payment cannot reasonably be included as core expenditure. It relates primarily to promotion of the programme.
If it is in a TPC’s interest to allocate part of the overall fee paid to a principal actor to activities other than principal photography, HMRC would expect the TPC to undertake the necessary work to establish and agree with HMRC an alternative allocation.
Interaction with Foreign Entertainers Unit (FEU)
The FEU have responsibility for agreeing the taxation of foreign actors appearing in UK productions. In agreeing the tax position, FEU may allow deductions from their fees for expenses which the actor has incurred.
Deductions allowed have no effect on the amount the TPC can claim as core expenditure. This will remain the gross fee subject to any restrictions for non-UK expenditure and non-core expenditure.