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HMRC internal manual

Theatre Tax Relief

HM Revenue & Customs
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Taxation: profit/loss calculation: income: timing

S1217IA, S1217ID Corporation Tax Act 2009 (CTA 2009)

Where the separate theatrical trade of a Theatre Production Company (TPC) is within the rules in Part 15C CTA 2009 (TTR20010), income is recognised and expenditure is incurred in line with current accounting principles.  This is the case even where the production expenditure would not be recognised on the profit and loss account because the company is creating a capital asset for exploitation (TTR20230).

For more details on this matching of income to expenditure see TTR20250.

This treatment results in profits being recognised as production progresses and not just at completion, unless there are specific contingencies outside the control of the person doing the work.

For accounting periods beginning before 1 January 2015, the method of calculating profits or losses of the separate theatrical trade for tax purposes broadly follows the model provided by Statement of Standard Accounting Practice 9- ‘Stocks and long-term contracts’ (SSAP9).

For accounting periods beginning on or after 1 January 2015, UK businesses will follow Financial Reporting Standard 102 (FRS 102).  This will effectively replace SSAP9.  In practical terms, there should be little change as to when revenue is first recognised.

The amount of income to be recognised at the end of an accounting period is given by a formula (TTR20250).  This measures the state of completion of the theatrical production by reference to the production expenditure to date compared to the estimated total production expenditure on the theatrical production.  We would expect future income to be discounted before being brought into this formula.

When the theatrical production is closed there will generally be no further expected expenditure on its production.  If the rights in the production are sold outright there will also be no further expenditure on its exploitation.  All the known estimated income will have been recognised and any further income should be recognised as it is earned.

If the production is retained and exploited there will be further expenditure on exploitation.