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HMRC internal manual

Theatre Tax Relief

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HM Revenue & Customs
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Calculation: surrenderable losses and Theatre Tax Credit – example – multi-period production

The following example illustrates how a Theatrical Production Company (TPC) that sustains a surrenderable loss can surrender that loss in return for a Theatre Tax Credit (TTC) (TTR55100).  In this case the production spans two periods.

As with the additional deduction (TTR55050), the calculation of the TTC is cumulative where the production takes more than one period to complete.

Example

A TPC makes a qualifying production with total core expenditure of £1m, all of which is EEA expenditure.  The production was commissioned by a producer which pays £900k for it.  The production qualifies as a touring production.

The production takes two periods of account to make, and the TPC incurs expenditure of £400k in the first period and £600k in the second.  The commissioning producer pays the TPC £500k in the first period and the remaining £400k in the second.

In order to establish the profit or loss made in each accounting period, the TPC should apply the income recognition rules, rather than the amount which the commissioning producer actually pays during each period (TTR20220).

In this example, the income is calculated on the basis of the proportion of total expenditure incurred in each period multiplied by the estimated total income.

The TPC elects to surrender the full amount of losses possible for TTC.

First period

Estimated income £360k (£400k/£1m x £900k)
     
Expenditure (£400k)  
Trading loss before Theatre Tax Relief (TTR) (£40k)  
Theatre Tax Relief - additional deduction (£320k)  
(80% x £400k total core expenditure to date)    
Trading loss after TTR (£360k)  

The surrenderable loss for the first accounting period is the lesser of:

  • the £360k available loss, and
  • the £320k additional deduction.

Therefore, only £320k of the loss can be surrendered, giving a TTC of £80k (25% TTC rate for touring productions x £320k loss surrendered).

The remaining loss of £40k (£360k - £320k) is carried forward.

Second period

Income £540k (£900k - £360k)
     
Expenditure (£600k) (£1m - £400k)
Trading loss before Theatre Tax Relief (TTR) (£60k)  
Theatre Tax Relief - additional deduction (480k)  
((80% x £1m total core expenditure) - £320k additional deduction claimed in the previous Period)    
Trading loss after TTR (£540k)  

The surrenderable loss for the second accounting period is the lesser of:

  • the £580k available loss (£540k trading loss after TTR plus the £40k loss brought forward), and
  • the £480k additional deduction.

Therefore, only £480k of the loss can be surrendered, giving a TTC of £120k (25% TTC rate for touring productions x £480k loss surrendered).

The remaining £100k loss (£580k - £480k) can be carried forward, or treated as a terminal loss if the trade ceases (TTR30040).

Cumulative effect

This means that the TTC is worth £200k over the two periods (£80k + £120k), the same as it would have been had the production been made in a single period.

This is provided that claims for TTC are made in both periods.

Summary

  Period 1 Period 2
     
Expenditure incurred to end of period (all EEA) £400k £1m
Additional deduction to end of period (in this example 80% of total core expenditure) £320k £800k
Less additional deduction claimed for earlier period(s) £nil (£320k)
Additional deduction due for the period £320k £480k
Estimated total income attributed to period £360k £540k
Expenditure attributed to period £400k £600k
Additional deduction due for the period £320k £480k
Trading profit/(loss) after TTR (£360k)  
Surrenderable loss (£320k)  
(lower of available loss for the period and additional deduction)