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HMRC internal manual

Theatre Tax Relief

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HM Revenue & Customs
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Eligible expenditure: apportionments: just and reasonable

S1217GB and S1217GC Corporation Tax Act 2009

The amount of Theatre Tax Relief (TTR) to which a Theatrical Production Company (TPC) is entitled in respect of a separate theatrical trade is determined by the amount of core expenditure (TTR50010) that is EEA expenditure.

It is therefore necessary to determine:

  • the amount of core expenditure, and
  • the extent to which that core expenditure relates to goods or services that are provided from within the European Economic Area (EEA) (TPC50050).

Determining the amount of core expenditure

Where expenditure relates solely to producing the production or closing the production it will all be core expenditure.

Where expenditure does not relate to producing the production or closing the production none of it will be core expenditure.

However, where expenditure relates partly to producing the production and/or closing the production and partly to other activities it will be necessary to apportion the expenditure between core expenditure and non-core expenditure.

The method for making an apportionment is not fixed and can be determined on a case by case basis.  The key criterion is that the apportionment must be done on a just and reasonable basis.

Determining the extent to which core expenditure is EEA expenditure

Once the amount of core expenditure has been determined it is then necessary to determine the extent to which that expenditure relates to goods or services that are provided from within the EEA.

Goods are provided from within the EEA if they are supplied from within the EEA.  It should normally be straightforward to determine whether core expenditure on goods is EEA expenditure or not. 

Core expenditure relating to specific goods will be either all EEA expenditure or all non-EEA expenditure dependent upon whether or not they are supplied from within or without the EEA.

Where a production is partly produced in the EEA and partly outside the EEA it follows that some services will be provided in more than one territory.  In such cases, it may be necessary to make an apportionment of the relevant core expenditure between EEA and non-EEA expenditure.

Apportionment of core expenditure between EEA and non-EEA expenditure applies only to services provided in relation to the production and closing phases of the theatrical production.  It is not necessary to apportion non-core expenditure or expenditure relating to specific goods between EEA expenditure and non-EEA expenditure.

The method for making an apportionment is not fixed and can be determined on a case by case basis.  The key criterion is that the apportionment must be done on a just and reasonable basis.

More than one just and reasonable basis

There will often be more than one just and reasonable basis.  The requirement is not that the apportionment must be made using the fairest and most reasonable basis, but simply that it must be made on a basis that is just and reasonable.

It is, however, expected that a chosen methodology will be used consistently.

Use of allocation keys

It may be that expenditure cannot be easily apportioned or that considerable effort is required to do so.  Where this is the case, it may be just and reasonable to base the apportionment on other expenditure that is considered to be related.  This should provide a just and reasonable approximation.

Impact of the result

What is a just and reasonable method of apportionment in any particular case should have regard to the likely impact of the result.

Where the method used involves larger costs, or is used as an allocation key for a larger cost, more consideration is required as to what is just and reasonable.

Example

Two principal actors, Mr A and Ms B, are paid fees of £100k and £50k, respectively, for performing in a theatrical production.  The play is produced partly outside of the EEA and partly in the EEA.

The actors commit to rehearsing for two weeks outside the EEA and two weeks in the EEA prior to performing live during a four week run.  Both actors commit to making themselves available throughout these periods.  However, they are not required for the full length of time.

  Mr A Ms B
     
Days available for rehearsals outside the EEA 14 14
Days available for rehearsals in the EEA 14 14
Days available for live performances 28 28
Total days available 56 56
     
Actual rehearsal days outside the EEA 10 3
Actual rehearsal days in the EEA 5 9
Actual live performance days 28 28
Total days actually rehearsing/performing 43 40

 From this information, it is possible to apportion using two different just and reasonable methods.  Each method may be used.

Step 1: determining the amount of core expenditure

It is first necessary to determine the amount of core expenditure.  That is, the proportion of the actor’s fees that relate to producing the production rather than to running the production.

It would be reasonable to apportion the actor’s fees between core and non-core expenditure based on the time that each has made themselves available.  That is, 50% for rehearsals (production) and 50% for live performances (running).

The total fees apportioned to core expenditure would be £75k ((£100k + £50k) x 50%).

It would also be reasonable to apportion the actor’s fees between core and non-core expenditure based on the days that each spent actually rehearsing and performing live.  In that case, the proportions of Mr A and Ms B’s fees attributed to core expenditure would be 35% (15/43 x 100) and 30% (12/40 x 100), respectively.

The total fees apportioned to core expenditure would be £50k ((£100k x 35%) + (£50k x 30%)).

Summary

Method of apportionment Availability   Actual  
         
Actor Mr A Ms B Mr A Ms B
Actors fee £100k £50k £100k £50k
Core proportion 50% (28/56) 50% (28/56) 35% (15/43) 30% (12/40)
Core expenditure £50k £25k £35k £15k
Total core expenditure   £75k   £50k

 Step 2: EEA expenditure

Having determined the amount of core expenditure it is then necessary to determine the extent to which that expenditure relates to goods or services that are provided from within the EEA.

Again, it is possible to apportion using two different just and reasonable methods.  However, a chosen method should be used consistently where possible.  It would not be just to ‘cherry pick’ and apportion Mr A’s fees by reference to his availability and Ms B’s fees by reference to days spent actually rehearsing and performing live.

Based on availability, the proportion of the core expenditure on the actor’s fees attributed to EEA expenditure would be 50% (14/28 x 100).

Of the £75k core expenditure on the actor’s fees, £37.5k (£75k x 50%) would be EEA expenditure.

Based on days spent actually rehearsing and performing live, the proportions of the core expenditure on Mr A and Ms B’s fees attributed to EEA expenditure would be 33% (5/15 x 100) and 75% (9/12 x 100), respectively.

Of the £50k core expenditure on the actor’s fees, £22,800 ((£35k x 33%) + (£15k x 75%)) would be EEA expenditure.

Summary

Total core expenditure   £75k   £50k
         
EEA proportion 50% (14/28) 50% (14/28) 33% (5/15) 75% (9/12)
EEA expenditure £25k £12.5k £11,550 £11,250
Total EEA expenditure   £37.5k   £22,800