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HMRC internal manual

Theatre Tax Relief

Avoidance: inflation of theatrical production costs

S1217ID Corporation Tax Act 2009 (CTA 2009)

The legislation of Theatre Tax Relief (TTR) is based on the legislation already in place for Film Tax Relief (FTR).  FTR was designed to ensure that it did not suffer from abuses similar to those of the previous tax relief regimes for films.

The previous film tax regime was subject to regular abuse by those seeking a means to avoid tax. One such abuse was the artificial inflation of the actual level of production expenditure through the inclusion of deferred fees or other contingent costs, such as participations, which might never arise in practice.

The tax regime for theatrical productions includes features intended to ensure that it does not suffer from similar abuse in the future.

Recognition of expenditure

Where a Theatrical Production Company (TPC) claims TTR in respect of a theatrical production, there are rules for determining when expenditure on that production is recognised for the purposes of the basic tax computation under Part 15C CTA 2009.

Under these rules:

  • expenditure is recognised to the extent it is represented in the state of completion of the production
  • any amount of that which has not actually been paid is only recognised where its payment by the TPC in the future is unconditional
  • costs relating to an obligation that is linked to income being earned from the theatrical production can only be brought into account to the extent that the relevant income is brought into account.

Unpaid amounts

In calculating an additional deduction under TTR, any amount that has not been paid 4-months after the end of the relevant period of account is excluded, irrespective of whether there is an unconditional obligation for it to be paid in the future.

Deferments or contingent fees unpaid four months after the end of the relevant period should be disregarded for the purposes of calculating a claim for TTR, even where such costs are subject to an unconditional obligation to be paid.

This disregard does not apply to the basic tax computation.


A company is commissioned to produce a TTR-qualifying production and claims TTR as the TPC for the production.  Production costs are £1m, all of which are incurred on goods or services provided from within the EEA.  The production is produced, performed and closed within a single accounting period (Period 1).

The production agreement provides that the TPC will be paid:

  • £840k for producing the production, and
  • a further £100,000 dependent on box office receipts.

The principal actor has an agreement with the TPC that if the target for box office receipts is met he will receive an additional £80,000 from the TPC.

The contingent receipts of £100,000 and £80,000 are too uncertain to bring into the calculation of the production’s profit or loss until the box office receipts are known.

The box office targets are met towards the end of Period 2.  At that point the additional £100,000 is treated as earned and brought into the calculation of profit or loss for Period 2.  The obligation to pay the actor will also be recognised in that period for the purposes of calculating the profits or losses of the separate theatrical trade under Part 15C CTA 2009.

But the TPC does not receive the payment, and does not pay out the £80,000 due to the principal actor until midway through Period 3.  This is more than four months after the end of Period 2.  So for the purposes of TTR, the £80,000 is ignored when looking at Period 2, but is brought into Period 3.

Profits or losses of separate trade Period 1 Period 2 Period 3
Income £840k £100k nil
Production expenditure £1,000k £80k nil
Trading profit/ (loss) (160k) £20k nil

Calculation of additional deduction and surrenderable loss

Total core expenditure (all EEA £1,000k £1,000k £1,080k
Expenditure) incurred to date (disregarding £80k unpaid within 4 months of end of period) (including £80k but paid in Period 3) incurred in Period 2
Increase over total core expenditure £1,000k £1,000k £1,080k
Previously brought into account      
Enhanceable expenditure (in this case 80% of total core expenditure) £800k £800k £864k
Less additional deduction claimed for earlier period(s) £0 (£800k) (£800k)
TTR - additional deduction £800k nil £64k
Trading profit/ (loss) after relief (£960) £20k (£64k)
Surrenderable loss (lesser of available loss for the period and additional deduction) £800k nil £64k


  • the loss not attributable to TTR is £140,000
  • surrenderable losses £864