Theatre Tax Relief criteria

Interpretation of production income and costs

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I thought I understood TTR fairly well but having re-read both the HMRC manual and the actual legislation, I'm seeking some colleagues opinions, hopefully to ensure I make the correct claim on behalf of my client first time!

In essence, my client, a TPC, has made a small profit on a show that qualifies for TTR (based on the actual theatrical production income and expenses).  After calculating core costs and the appropriate percentage, TTR of c.£15k is due.  All good!

However, the TPC also produced a book, based on the production, which was sold at the venues during the run and subsequently is available for purchase via their website.  If I understand the rules correctly, "exploitation" of the production should be included in the P&L for TTR purposes.  If this is the case, that small profit, turns into a small loss (i.e. the costs of producing the book are higher than the sales (to date)).  This will therefore increase the amount eligible for TTR to c.£18k.

I can't find specific mention where the TPC producing in-house merchandise as part of the company's general P&L (it seems to refer to income for rights to produce it), am I safe in including it in the overall calculation and if so, any suggestions as to how to treat post-AP income given that although book costs aren't core costs of production, they'll contribute to reducing overall profit?

Side question: There is another separate production in the pipeline with associated merchandise.  If the book sales are higher than production costs (of the book), this would reduce a TTR claim so my dilemma would be do they HAVE to be included as part of the production?  In other words, is the exploitation side of things an option for claiming TTR (in the same vein as Capital Allowances)?  

Any help with the interpretation of the rules would be appreciated.  Thanks in advance.

Replies (9)

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By jonharris999
27th Nov 2023 13:08

TTR is a hopelessly, needlessly complex beast - as I am fond of saying, something you get when you let Tories design a subsidy.

I find anecdotally that there are widely varying practices, many of which have been entirely untested or unchallenged, especially in the case of relatively small claims of the sort of size you describe.

That said, you lost me at the end of your third paragraph. The amount of relief or payable credit can only be a % of core expenditure, so how could that increase as a result of considering the books, the cost of which are not core expenditure? Sorry if I'm missing something.

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Replying to jonharris999:
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By actingsilly
27th Nov 2023 15:52

Yes, it's a beast but we mustn't bite its hand as it feeds us!
We should keep this apolitical so do go wash your keyboard with some tax-deductible fluid! ;)
As for the amount of relief increasing...it's not that the core costs change (i.e. 80% of that is eligible expenditure (E) which is then multiplied by the rate of relief...it's production profit (P) or loss (L) that changes. So the relief is the lower of E and (P-E) or (L-E). In other words, additional relief is only going to be the rate x profit as once it goes to zero, E kicks in as the 'lower of...'
My point was that if I ignore the book sales and costs as part of the overall production because they're not required for "staging", there's a profit. If I include the book sales and costs as part of the production because they're "exploitation...", there's a loss...which therefore increases E.
As you say, these may go unchallenged, but I don't want to give my client false hope only for HMRC to ask for a breakdown and bring down the curtain (couldn't resist).

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Replying to actingsilly:
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By jonharris999
28th Nov 2023 07:03

Quite right. I don't want to get banned for Cameron-bashing, not even for saying he'll probably be a better Foreign Sec than he was an overall maestro, albeit that his Foreign Sec-ship will probably last about 5 seconds.

Anyway, I'm still not with you, sorry. Your "E" is eligible expenditure. This is what it is, and doesn't include the book costs, so how can it increase or decrease?

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Replying to jonharris999:
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By actingsilly
28th Nov 2023 09:58

It’s all gone downhill since Lloyd George!

You’re right the E doesn’t change (as in 80% of core costs). Perhaps I was using wrong terminology…it’s the enhanced surrenderable loss that’s affected…ie company makes production loss; credit is % of E. company makes production profit; credit is restricted to % of E less that profit. I think. I hope. So it all hinges on whether I include merchandise as a production cost.
Would it help if I use some real numbers?

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Replying to actingsilly:
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By jonharris999
28th Nov 2023 14:30

EXACTLY.

Ah OK, I think I'm slowly catching up with you.

Stepurhan raises one good point below.

But also - how is the question you're asking different from this question:

"If a TPC has made a Profit on the show itself, but a loss across its whole activity, is the P/L in the TTR comp the P or the L ?"

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Replying to jonharris999:
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By actingsilly
29th Nov 2023 12:21

Hmm - my brain hurts...I've replied to Stephuran - I think my mind is made up!

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Replying to actingsilly:
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By jonharris999
29th Nov 2023 20:22

Yes, I think you're right (and thanks Stepurhan) in your particular example.

The same scenario could crop up if the exploitation wasn't either merchandise or, as you say, a third-party rights payment - and I think you're right, it wouldn't, as the guidance stands, be clear.

Yet another reason why TTR doesn't work, and should be replaced by a computer at the Arts Council which vets a few simple checks and then shunts out some money according to a formula which I'd write for them if they asked me. Simpler, quicker, cheaper, fairer.

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Stepurhan
By stepurhan
28th Nov 2023 12:47

Stock of books?

If the cost of producing them is higher than the sales, it seems likely that you have a stock of books whose value (at cost) would carry the costs forward (i.e. not create a loss in the current accounts).

I don't know the ins and outs of TTR so I don't know if that has an effect, or even the fact of stock existing takes the costs outside the relief.

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Replying to stepurhan:
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By actingsilly
29th Nov 2023 12:21

Yes I'd thought about the stock issue...I think this probably knocks the idea on the head as it makes the whole thing too complex to bring into account and as I prefer to err on the side of caution, I'll settle for the bog-standard production income and costs as being what's required to account...perhaps I was 'willing' the legislation to mean that exploitation meant trading off the back of the production rather than receiving income for granting rights to a third party to exploit - which IS explicit.

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