Not-for-profit organisations: direct tax
Qualifying theatre groups in the not-for-profit sector are constituted as companies and are subject to corporation tax. However, charities are exempt from corporation tax on a number of sources of income and gains including charitable trading profits, rental income, capital gains and interest, provided the income and/or gains are applied to charitable purposes only.
HMRC guidance about charities can be found at Charities (GOV.UK).
Where a not-for-profit organisation is a qualifying Theatre Production Company (TPC) and has a qualifying production (TTR40010+), the organisation can access Theatre Tax Relief (TTR) on the same basis as any other TPC. The calculation of the Theatre Tax Credit is the same whether the TPC is a qualifying not-for-profit organisation or a commercial company within the charge to corporation tax.
This means that a TPC is entitled to claim TTR on its enhanceable expenditure (TTR55020) provided:
- the production is a theatrical production (TTR10100) and is not an excluded production (TTR40020)
- the commercial purpose condition is satisfied (TTR10120), and
- not less than 25% of the core expenditure on the production is EEA expenditure (TTR40040).
Single not-for-profit organisation as Theatre Production Company
The not-for-profit organisation must qualify as a TPC (TTR10110).
Each qualifying production must be treated as a separate theatrical trade for tax purposes (TTR20010).
A charity should take professional advice on whether acting as a TPC in any way impacts on its charitable status.
It is beyond the scope of this guidance manual to comment on charitable status.
Theatre Production Company that is a wholly owned trading subsidiary of a not-for-profit organisation
A not-for-profit organisation, such as a charity, may set up a wholly owned trading subsidiary, which could become the TPC.
This model of using a special purpose vehicle is commonly used in the other creative industries tax reliefs.
The wholly owned trading subsidiary will be within the charge to corporation tax and must be a qualifying TPC (TTR10110).
It will not be sufficient for a not-for-profit organisation to carry on the functions of a TPC (directly negotiating contracts, etc) and merely to use the subsidiary to claim the tax relief. The trading subsidiary in those circumstances will not be a qualifying TPC.
This is not to say, however, that a trading subsidiary which meets the TPC description cannot subcontract theatrical production activities back to a not-for-profit organisation.
A charity should ensure that using this model will not impact on its charitable status and consider the potential VAT implications (see TTR70030).
A charity should take professional advice on the tax and any other implications of setting up a separate trading subsidiary.
It is not HMRC’s responsibility to provide advice on tax planning.