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How will the tax relief work for subsidised theatre companies?

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Arts Council England has issued the following guidance on the theatre tax relief:

“In the budget today the Chancellor announced a new scheme for arts and cultural organisations to claim specific tax relief on production costs. This applies to both commercial and subsidised productions and will include theatre, ballet, dance and opera, musicals and other live performance.

The Chancellor announced two rates of relief; 25% for touring productions and 20% for all other productions.

A consultation on the proposed detailed design, developed by the Treasury/HMRC with SOLT,UK Theatre, an industry working group and Arts Council England and will be published shortly, with legislation taking effect from September 2014.

Arts Council England welcomes this initiative and recommends that arts organisations study and respond to the consultation – details will be made available on our website soon.

In brief, the proposed scheme will work like this;

• Under this new relief, a production company will be able to claim tax relief on costs on a per-production basis. This relief will be at two different rates: at 25% for touring productions and 20% for others from September 2014. The calculation of this is as a percentage of eligible capitalised expenditure (broadly one takes the capitalisation of the project, and the eligible portion comprises most categories excluding marketing and advertising, running costs, contingencies and any finance costs). The tax relief is then applied to 80% of this eligible expenditure. The mechanism for claiming the relief will be covered in the forthcoming consultation.

• Both publicly funded and commercial productions will benefit, either by offsetting the relief against corporation tax or through a cash credit for the equivalent amount. We have been working hard to ensure that this will work for productions mounted by all sorts of organisations, including those in the ‘subsidised’ sector. This relief is separate from other forms of funding currently awarded to the arts sector.

The majority of theatre companies that receive funding from Arts Council England are charities and are not usually liable for corporation tax. It is envisaged that in order to benefit from the tax relief a charity will create a trading subsidiary that is liable for corporation tax through which it will make the production and benefit from any relief. There will be guidance from HMRC in due course.

Arts Council England will support a training programme for the industry which will be delivered by SOLT and UK Theatre in conjunction with the HMRC, once the consultation has concluded.

The guidance and training programme will offer practical advice on how to benefit from the new tax credit scheme, advising organisations on how they can benefit, outline the definitions, and detail eligible costs and time periods

There will be much more detail to follow over the coming weeks.”

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