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HMRC internal manual

Theatre Tax Relief

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HM Revenue & Customs
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Losses: surrendered for Theatre Tax Credit

S1217CI(3) Corporation Tax Act 2009 (CTA 2009)

Where a company makes a claim for Theatre Tax Credit (TTC) it surrenders a part of its surrenderable loss for the credit.  The loss surrendered cannot be utilised in any other way.

Example

A Theatrical Production Company (TPC) produces non-touring Production 1 which qualifies for Theatre Tax Relief (TTR).  The company draws up accounts to 31 March.

The separate theatrical trade for the purposes of Part 15C CTA 2009 commences on 3 July 2015 and ceases on 31 March 2017.  The accounting periods are therefore:

  • 3 July 2015 to 31 March 2016
  • year to 31 March 2017

The computations show:

Period ended 31 March 2016 £
   
Income from the production 100,000
Costs of the production (850,000)
Theatre tax relief – additional deduction (400,000)
Profit/(loss) on production (1,150,000)
Other income - non-trade loan relationship 10,000

The computation shows a trading loss of £1,150,000.  The TPC chooses to surrender part of this trading loss for TTC.

The amount of surrenderable loss is the lesser of:

  • the amount of trading loss for the period of £1,150,000, and
  • the available qualifying expenditure of £400,000.

The maximum surrenderable loss is therefore £400,000 and this is surrendered for TTC of £80,000 (£400,000 x 20% TTC rate for non-touring productions).

This leaves a loss of £750,000 which can only be carried forward.  As this is a pre-completion period, this loss is restricted and cannot be offset against other income.  The £10,000 interest income (the non-trade loan relationship income) is therefore taxable.

Year ended 31 March 2017 £
   
Income from the production 100,000
Costs of the production (150,000)
Theatre tax relief – additional deduction (100,000)
Profit/(loss) on production (150,000)
Other income - non-trade loan relationship 20,000

The computation shows a trading loss of £150,000.  This is the completion period in respect of the separate theatrical trade.

Of the brought forward loss of £750,000:

  • nil is attributable to TTR, and
  • £750,000 is not attributable to TTR.

As this is the completion period, the company can utilise the losses not attributable to TTR against other profits and carry them back to the previous period.  The company therefore utilise losses as follows:

Set against other profits of the same accounting period £20,000
   
Carried back against profits of the previous period £10,000
Surrendered as group relief nil
  £30,000

This is the maximum amount that can be relieved.  This leaves the company with nil total taxable profits in both periods.

The company has unutilised losses brought forward of £720,000.

The current year losses may be surrendered for TTC.  The maximum amount of surrenderable loss is the lesser of:

  • £870,000, being the £150,000 trading loss for the period plus the relevant unused loss of £720,000, and
  • the available qualifying expenditure of £100,000.

The maximum surrenderable loss is therefore £100,000.  This produces TTC of £20,000 (£100,000 x 20% TTC rate for non-touring productions) and leaves a trading loss for this accounting period of £50,000.

Unless they can be surrendered for group relief or transferred or surrendered under the special terminal loss relief rules, the remaining £770,000 losses will be stranded.

The following table shows how the losses are used in the various accounting periods:

  APE 31/03/16   APE 31/03/17  
         
  TTR non-TTR TTR non-TTR
  £ £ £ £
APE 31/03/16        
Pre-completion period losses 400,000 750,000    
Loss surrendered for TTC (400,000)                    
Loss carried forward nil 750,000    
APE 31/03/17        
Losses brought forward                  750,000    
Completion period losses     100,000 50,000
Loss surrendered for TTC     (100,000)  
Set off against NTLR   (20,000)    
Carried back against NTLR of previous period   (10,000)                                
Remaining losses   720,000 nil 50,000