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HMRC internal manual

Theatre Tax Relief

Taxation: profit/loss calculation: estimating amounts

S1217IF Corporation Tax Act 2009 (CTA 2009)

Calculation of the profits or losses of the separate theatrical trade may involve estimating the total income and total costs of the theatrical production.  Part 15C CTA 2009 sets out the basis on which such estimates are made.

The aim of these rules is to ensure that the income that is recognised is in accordance with the substance of transactions in the same way that would be expected for statutory accounts.

Income should be recognised as the seller carries out its contractual obligations and so earns its rights to the income.  This is on the basis that it is probable that the income will flow to the company and that the expected income can be measured reliably.  It follows that speculative income should not be brought into account.  However, where a seller has entered into a transaction with a buyer, income should be recognised in accordance with the substance of that transaction.

If the revenue does not arise until the occurrence of a critical event, it is not recognised until that event occurs only if the occurrence is outside the control of the company. The production and running of the theatrical production is regarded as an event that is within the company’s control, and does not delay recognition.


Speculative productions

Almost all theatrical productions are commissioned and will have a measure for estimated total income from the outset.

However, some productions that come within this legislation might be highly speculative.  There may be little, if any, income that can be brought into account in calculating profits for an accounting period.

Nevertheless, it is likely that there will be a reliable estimate for the estimated total cost and so the costs to be debited in each accounting period will be the additional costs reflected in the work done while the income may well be zero.

The example below is intended to illustrate how to estimate total income for the purposes of establishing the profits or losses of a separate theatrical trade.  Entitlement to Theatre Tax Relief (TTR) is not addressed here, but is dealt with separately (TTR55000).


At the end of the first period of account of production the estimated income and expenditure for a theatrical production is:

Grants and equity investments £50k
Existing pre-sales of tickets £100k
Sales agent forecast of sales of remaining tickets £120k
Total cost of producing according to the budget £220k

The estimated total income from the theatrical production to be brought into the calculation of the income treated as earned under the TTR rules (TTR20250) is the money which the Theatrical Production Company (TPC) has or expects to receive; this is the grants and equity investments of £50k plus the pre-sale tickets of £100k.

The sales agent forecast of £120k is the sales agent’s judgement of how much might be expected if the remaining tickets are sold.  The sales agent’s estimate, in this instance, is not considered to be sufficiently probable or reliably measurable and so it would not be just and reasonable to include it in the TPC’s estimated total income.