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HMRC internal manual

Theatre Tax Relief

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HM Revenue & Customs
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Calculation: additional deduction – single-period production

S1217J Corporation Tax Act 2009

A Theatrical Production Company (TPC) entitled to Theatre Tax Relief (TTR) can claim an additional deduction in computing the taxable profits of the separate theatrical trade for a production.

The effect of the additional deduction is to increase the level of expenditure for tax purposes.  This may decrease the taxable profit of the separate theatrical trade and therefore the amount of Corporation Tax which would otherwise be payable.  It may also create or increase a loss in the separate theatrical trade, some or all of which may be available to surrender for a Theatre Tax Credit (TTC).

Example: production completed in a single period

A TPC makes a qualifying production for £3m, all of which is EEA core expenditure.  It receives £6m from exploitation of the production and therefore generates a profit of £3m on which it would normally pay Corporation Tax.  The company is subject to Corporation Tax at a rate of 21%.  The production is completed within a single accounting period.

Expenditure on the production is eligible for TTR.  The TPC is entitled to an additional deduction in computing its taxable profits/losses from the separate theatrical trade for the production.  Since all of the core expenditure is EEA expenditure, the additional deduction is calculated by reference to 80% of the total core expenditure.

Income £6m
   
Expenditure (£3m)
Trading profit before TTR  £3m  
Theatre Tax Relief - additional deduction (£2.4m)
(80% x £3m total core expenditure)  
Trading profit after TTR £600k

Without TTR, the TPC would have been liable to pay Corporation Tax of £630,000 (21% corporation tax rate x the pre-TTR profit of £3m).

The additional deduction claimed under TTR reduces the Corporation Tax liability to £126,000 (21% corporation tax rate x the post-TTR profit of £600k).  The benefit of the TTR claim to the company is therefore £504,000 (£630,000 - £126,000).

In this example, the TTR is worth 16.8% of the total core expenditure (TTR50010).