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HMRC internal manual

Theatre Tax Relief

Eligible expenditure: payment for intellectual property rights

Theatre Tax Relief (TTR) for theatrical productions is available on production and closing expenditure but not development and ordinary running expenditure.  It is therefore important to identify and quantify development and ordinary running expenditure.

Book rights

Expenditure on the rights to use a story or book as the basis of a theatrical production that progresses beyond the development phase is production expenditure and therefore core expenditure.

Expenditure on wider rights, such as the rights allowing the commercial exploitation of characters, story or other intellectual property, is not always production expenditure.  Some of these rights may be required to produce the theatrical production, and so qualify as core expenditure.  Where these are not necessary to production of the theatrical production the costs associated with these rights will not be core expenditure.

Methods of producing theatrical productions vary extensively, so each case must be considered carefully.  However, in general, a payment to secure an option over the right to use a book or story is speculative and not core expenditure whereas the cost of exercising such an option or of purchasing the actual rights needed to produce the theatrical production is not speculative and will be core expenditure if the production progresses beyond the development phase.

Example 1

An independent producer likes a book and thinks that a theatrical production might be made out of it.

She does some preliminary work, including setting up a Special Purpose Vehicle (SPV) and seeking initial opinions from colleagues and financiers.  An SPV, in this instance, is a company through which any costs associated with the theatrical production will be incurred.  If the SPV is not a company then it will not be eligible for TTR.

All seems favorable, so the company pays for an option over the production rights. This is purely to protect their position and is speculative.

Further development work follows, which includes commissioning a scriptwriter to write a script. Finance is found and actors put under contract (that is, ’green lighting’). At this stage the SPV exercises the option so that it can produce the theatre production.

The SPV’s payment for the rights is core expenditure. The payment for the option is not core expenditure.

It is not yet possible to say to what extent the payment for the script is core expenditure or not.  If the script is heavily rewritten then the payment for the first draft might be considered to be purely development expenditure.  However, if the script were to remain largely unchanged, then a just and reasonable proportion of the cost would be core expenditure.

Example 2

A producer buys outright the intellectual property in a series of popular children’s adventure stories and sets to work making several theatrical productions based on them.  It does this by engaging different SPV companies to produce theatrical productions each based on a separate book.

Included within the costs borne by each SPV is a recharge to the producer of the book rights relating to the theatrical production it has been commissioned to produce.  The producer retains all other intellectual property rights that are not necessary for production.

Each SPV will treat the payment to the producer for book rights as core expenditure provided it actually carries out production activities in relation to the theatrical production it has been commissioned to produce.

Musical, literary and stock film rights

The considerations for rights connected to music, songs, literary works and stock footage are similar. Where these are incorporated into the theatrical production the expenditure incurred on them will be core expenditure.