UK: Creative Sector Reliefs: Tax Incentives For Companies - 2016

Last Updated: 31 May 2016
Article by Rachel Baber, Paul Duckworth, Kari Campbell and Matt Watts

Creative sector reliefs offer tax advantages for companies that produce 'high-end' TV, animation and children's TV, video games and theatrical productions. Tax relief for orchestral performances is currently subject to draft legislation as part of the 2016 Finance Bill.

Since 2013, the UK Government has expanded the range of creative sector tax reliefs from films (originally introduced in 2007) to qualifying high end TV, children's TV, video games, theatrical productions and orchestral performances.

To qualify, animation, children's TV or high-end TV programmes will need to be certified as a British cultural product to satisfy EU state aid requirements. Video games will need to satisfy a combination of UK and EU cultural tests. There is no cultural test for theatre or orchestra tax relief.

When considering the creative sector reliefs, make sure you take into account other taxes such as VAT, particularly in view of the changes to the VAT place of supply rules which came into effect on 1 January 2015 for business to consumer supplies of broadcasting, telecommunications and electronic services.

Conditions for the reliefs

High-end TV, children's TV, animation and video games tax reliefs are subject to cultural tests similar to those for UK film tax incentives.

The cultural tests pass mark is either 16 points from a possible 31 (animation and video games) or 18 out of 35 (high-end TV and children's TV). Points are awarded in four areas: cultural content, cultural contribution, use of UK cultural hubs and use of UK/EEA cultural practitioners.

TV and animation

The relief is available to television production companies and applies to drama, documentary, children's TV and animation programmes. Drama for this purpose includes comedy, but excludes advertisements, live performances and quiz shows, news broadcasts or current affairs and training programmes.

In the case of TV programmes that are not animation or for children, the slot length must be more than 30 minutes, and average core expenditure per hour of slot length of at least Ł1m. A drama or documentary that includes animation is treated as animation if the core expenditure on completed animation is at least 51% of total core expenditure.

For the programme to be classified as qualifying for these purposes:

  • it must be intended for broadcast to the general public
  • it must meet the cultural test by being certified by the Secretary of State as a British programme
  • at least 10% (previously 25%) of the core expenditure incurred by the company on the relevant programme must be UK expenditure.

Enhanced tax relief is only available for core expenditure. This is a narrower definition than production expenditure.

Production expenditure (relevant for defining the activity within the scope of the regime) means all expenditure on television production activities in connection with the programme, including its development, pre-production, principal photography and post-production. If images are generated by computer, references to principal photography mean the generation of those images.

Core expenditure (relevant for calculating the amount of tax relief available) means the pre-production, principal photography and post-production costs of the programme. UK core expenditure refers to goods or services that are used or consumed in the UK.

The relief is available for core expenditure incurred on or after 1 April 2013 (1 April 2015 for children's TV), with the requirement that qualifying expenditure be paid within four months of the end of the accounting period.

Video games

The relief can be claimed by a video game development company provided the video game meets the following conditions:

  • it must be intended for supply to the general public, as determined when production activities begin
  • it must meet the cultural test by being certified by the Secretary of State as a British video game
  • at least 25% of the core expenditure incurred by the company must be EEA expenditure.

Core expenditure in relation to video games means expenditure on designing, producing and testing. It does not, however, include expenditure on designing the initial concept for the game, or expenditure on debugging a completed video game or carrying out maintenance in connection with the game.

The relief is available for core expenditure incurred on or after 1 April 2014 (with the requirement that qualifying expenditure is paid within four months of the end of the accounting period).

Theatre tax relief

The relief can be claimed by a theatre production company provided the theatrical production meets the following conditions:

  • it must be a dramatic, live performance where at the beginning of the production a high proportion of the live performances are intended for paying members of the public or for education purposes
  • it must not have a main purpose of advertising or promoting goods or services, nor contain a competition or contest, nor include the use of 'wild animals' in any performance, nor be of a sexual nature, nor have the main object of making a recording
  • at least 25% of the core expenditure (expenditure involved in producing and closing the production) must be EEA expenditure (expenditure on the ordinary running of the production is not generally included in core expenditure).

The maximum amount of theatre tax relief available to any undertaking cannot exceed €50m per year.

The relief is available for core expenditure incurred on or after 1 September 2014 (with the requirement that qualifying expenditure is paid within four months of the end of the accounting period).

Orchestra tax relief

Draft legislation has been published for orchestra tax relief as part of the 2016 Finance Bill. Under the proposals, a company directly engaged in the production of live orchestral concerts can claim the relief provided the orchestral concert meets the following conditions:

  • it must be a concert by an orchestra, ensemble, group or band consisting wholly or mainly of at least 12 instrumentalists who are the primary focus of the concert. None or only a minority of the musical instruments to be played may be electronically or directly amplified
  • the company intends that the concert should be performed live either before the paying public or for educational purposes
  • it must not have a main purpose of advertising or promoting goods or services, nor contain a competition or contest, nor have the main object of making a 'relevant recording'
  • at least 25% of the core expenditure (expenditure on activities involved in producing the concert or concert series) must be EEA expenditure (expenditure on the actual performance is not included in core expenditure).

 The maximum amount of orchestra tax relief available to any undertaking cannot exceed €50m per year.

An election may be made to treat a concert series as a separate trade rather than treating each individual concert as such. The election must be made before the date of the first concert in the series.

The relief is available for core expenditure incurred on or after 1 April 2016 (with the requirement that qualifying expenditure is paid within four months of the end of the accounting period).

Whatever you produce in the creative sector, our experts can advise you on how to get the most out of the tax reliefs available.

Smith & Williamson LLP Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
We have taken great care to ensure the accuracy of this publication. However, the publication is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2016.code 16/450 Expiry 31/08/2016

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