Explanatory note (accessible version)
Updated 22 November 2023
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Clause 1: Administrative changes to the Creative Industry Tax Reliefs
Summary
1. Schedule 1 introduces changes to the cultural tax reliefs: Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR). It also introduces changes to Schedule 18 to the Finance Act 1998. These changes are intended to streamline the administration of the reliefs . The change from European to UK expenditure will ensure that the cultural reliefs continue to meet our international obligations.
Details of the Schedule
Schedule 1: Part 6: Theatrical productions
2. Paragraph 29 replaces the European expenditure condition in Part 15C of the Corporation Tax Act (CTA) 2009 with the UK expenditure condition. For a production to qualify for relief, at least 10% of core expenditure incurred on it must be expenditure on goods or services used or consumed in the UK. This rule has effect from 1 April 2024. The ‘used or consumed’ rule considers the location of the recipient or customer; the nationality or location of the provider is unimportant. For example, costumes bought from the USA may be considered items of UK expenditure if used in productions or rehearsals taking place in the UK.
3. Paragraph 30 sets out transitional provisions for the changes made by Paragraph 29. Sub-paragraph (2) exempts productions from the new UK expenditure rule if they enter production before 1 April 2024 and the separate trade relating to the production ceases before 1 April 2025.
4. Sub-paragraphs (3) and (4) explain the transitional provision for productions that enter production before 1 April 2024 and for which the separate trade continues after 1 April 2025. If these productions meet the European expenditure condition at 1 April 2025, they will be entitled to relief on expenditure incurred before that date even if they later do not meet the UK expenditure condition.
5. Sub-paragraph (5) explains that entitlement to a tax credit under sub-paragraph (4) is based on the amount of the surrenderable loss that arises only from income received and costs incurred before 1 April 2025. Income received and costs incurred after that date are not taken into account for the purposes of sub-paragraph (4).
6. Sub-paragraphs (6) and (7) make a general provision for all productions for which the separate trade continues after 1 April 2025. The references to a statement made by the production company in section 1217NA(1) and (2) (statements of UK expenditure incurred) are to include statements made before that section was amended by Paragraph 18 (statements of European expenditure incurred).
7. Sub-paragraph (8) explains that the application of section 1217NA(1) is subject to the provision in sub-paragraph (4).
8. Sub-paragraph (10) explains that a production ‘enters production’ when core expenditure is first incurred on it. Core expenditure is expenditure incurred on producing and closing the production, but not development or running costs. Core expenditure will first be incurred when the production enters the production phase.
9. Paragraph 30 replaces European expenditure in section 1217J of CTA 2009 (‘amount of relief for theatrical production’) with UK expenditure.
10. Paragraph 31 sets out transitional provisions for the change made by Paragraph 30. Sub-paragraph (4) allows for European expenditure incurred before 1 April 2024 to count as UK expenditure for the purposes of section 1217J as amended by Paragraph 31.
11. Sub-paragraph (5) explains that production companies with productions that enter production before 1 April 2024 may elect for European expenditure to count as UK expenditure for those productions up to 1 April 2025.
12. Paragraph 32 amends section 1217JA of CTA 2009 (‘expenditure on theatrical productions that qualifies for relief’) to exclude connected party profit from qualifying expenditure.
13. Sub-paragraph (3) defines connected party profit as the excess of the payment made to a connected party for supplying, transferring or doing something over the cost incurred by the connected party in supplying, transferring or doing that thing. For example, if company 1 pays connected company 2 £100 for a service, and providing that service costs company 2 only £75, company 1’s qualifying expenditure will be £75. The remaining £25 is the connected party profit.
14. Sub-paragraph (3) also makes provision to exclude connected party profit where payments flow through a chain of connected parties (see new subparagraph 1217JA(4)). For example, if company 1 sells a product worth £50 to connected company 2 for £100, and company 2 sells it on to company 3 for £100, company 3’s qualifying expenditure will still be only £50. The provision applies no matter how long the chain is.
15. Paragraph 33 inserts new section 1217KD (‘no claim if company not going concern’). A company may only claim relief when it is a going concern. A company is a going concern if it prepares its financial accounts on a going concern basis, unless the going concern basis is used only to remain eligible for relief. A company that is in administration or liquidation cannot make a claim. A company which does not prepare its accounts on a going concern basis can still claim relief if the only reason that the accounts are not prepared in that way is because the company transfers the separate theatrical trade to a fellow group company.
Schedule 1: Part 7: Orchestral concerts
16. Paragraph 38 replaces the European expenditure condition in Part 15D of CTA 2009 with the UK expenditure condition. For a concert to qualify for relief, at least 10% of core expenditure incurred on it must be expenditure on goods or services used or consumed in the UK. This rule has effect from 1 April 2024. The ‘used or consumed’ rule considers the location of the recipient or customer; the nationality or location of the provider is unimportant. For example, payments to a conductor resident in Japan, who conducts the rehearsals for a qualifying orchestral concert in the UK would be considered UK expenditure.
17. Paragraph 39 sets out transitional provisions for the changes made by Paragraph 38. Sub-paragraph (2) exempts concerts from the new UK expenditure rule if they enter production before 1 April 2024 and the separate trade relating to the concert ceases before 1 April 2025.
18. Sub-paragraphs (3) and (4) explain the transitional provision for concerts which enter production before 1 April 2024 and for which the separate trade continues after 1 April 2025. If these concerts meet the European expenditure condition at 1 April 2025, they will be entitled to relief on expenditure incurred before that date even if they later do not meet the UK expenditure condition.
19. Sub-paragraph (5) explains that entitlement to a tax credit under sub-paragraph (4) is based on the amount of the surrenderable loss that arises only from income received and costs incurred before 1 April 2025. Income received and costs incurred after that date are not taken into account for the purposes of sub-paragraph (4).
20. Sub-paragraphs (6) and (7) make a general provision for all concerts for which the separate trade continues after 1 April 2025. The references to a statement made by the production company in section 1217TA(1) and (2) (statements of UK expenditure incurred) are to include statements made before that section was amended by Paragraph 26 (statements of European expenditure incurred).
21. Sub-paragraph (8) explains that the application of section 1217TA(1) is subject to the provision in sub-paragraph (4).
22. Sub-paragraph (10) explains that a concert ‘enters production’ when core expenditure is first incurred on it. Core expenditure is expenditure on producing and closing the concert, but not development or running costs. Core expenditure will first be incurred when the concert enters the production phase.
23. Paragraph 40 replaces European expenditure in section 1217RE of CTA 2009 (‘amount of relief for orchestral concert’) with UK expenditure.
24. Paragraph 41 sets out transitional provisions for the change made by Paragraph 40. Sub-paragraph (4) allows for European expenditure incurred before 1 April 2024 to count as UK expenditure for the purposes of section 1217RE as amended by Paragraph 40.
25. Sub-paragraph (5) explains that production companies with concerts which enter production before 1 April 2024 may elect for European expenditure to count as UK expenditure for those concerts up to 1 April 2025.
26. Paragraph 42 amends section 1217RF of CTA 2009 (‘expenditure that qualifies for orchestra tax relief’) to exclude connected party profit from qualifying expenditure.
27. Sub-paragraph (3) defines connected party profit as the excess of the payment made to a connected party for supplying, transferring or doing something over the cost incurred by the connected party in supplying, transferring or doing that thing. For example, if company 1 pays connected company 2 £100 for a service, and providing that service costs company 2 only £75, company 1’s qualifying expenditure will be £75. The remaining £25 is the connected party profit.
28. Sub-paragraph (3) also makes provision to exclude connected party profit where payments flow through a chain of connected parties. For example, if company 1 sells a product worth £50 to connected company 2 for £100, and company 2 sells it on to company 3 for £100, company 3’s qualifying expenditure will still be only £50. The provision applies no matter how long the chain is.
29. Paragraph 43 inserts new section 1217RKA (‘no claim if company not going concern’). A company may only claim relief when it is a going concern. A company is a going concern if it prepares its financial accounts on a going concern basis, unless the going concern basis is used only to remain eligible for relief. A company that is in administration or liquidation cannot make a claim. A company which does not prepare its accounts on a going concern basis can still claim relief if the only reason that the accounts are not prepared in that way is because the company transfers the separate orchestral trade to a fellow group company.
Schedule 1: Part 8: Museum and gallery exhibitions
30. Paragraph 46 replaces the European expenditure condition in Part 15E of CTA 2009 with the UK expenditure condition. For an exhibition to qualify for relief, at least 10% of core expenditure incurred on it must be expenditure on goods or services used or consumed in the UK. This rule has effect from 1 April 2024. The ‘used or consumed’ rule considers the location of the recipient or customer; the nationality or location of the provider is unimportant. For example, specialist descriptive printed vinyls required as part of the curated design of the exhibition, bought and shipped from Australia for use in a qualifying exhibition held in the UK, may be considered items of UK expenditure. This rule has effect from 1 April 2024.
31. Paragraph 47 sets out transitional provisions for the changes made by Paragraph 46. Sub-paragraph (2) exempts exhibitions from the new UK expenditure rule if they enter production before 1 April 2024 and the separate trade relating to the exhibition ceases before 1 April 2025.
32. Sub-paragraphs (3) and (4) explain the transitional provision for exhibitions which enter production before 1 April 2024 and for which the separate trade continues after 1 April 2025. If these exhibitions meet the European expenditure condition at 1 April 2025, they will be entitled to relief on expenditure incurred before that date even if they later do not meet the UK expenditure condition.
33. Sub-paragraph (5) explains that entitlement to a tax credit under sub-paragraph (4) is based on the amount of the surrenderable loss that arises only from income received and costs incurred before 1 April 2025. Income received and costs incurred after that date are not taken into account for the purposes of sub-paragraph (4).
34. Sub-paragraphs (6) and (7) make a general provision for all exhibitions for which the separate trade continues after 1 April 2025. The references to a statement made by the production company in section 1218ZEA(1) and (2) (statements of UK expenditure incurred) are to include statements made before that section was amended by Paragraph 46 (statements of European expenditure incurred).
35. Sub-paragraph (8) explains that the application of section 1218ZEA(1) is subject to the provision in sub-paragraph (4).
36. Sub-paragraph (10) explains that an exhibition ‘enters production’ when core expenditure is first incurred on it. Core expenditure is expenditure on producing and closing the exhibition, but not development or running costs. Core expenditure will first be incurred when the exhibition enters the production phase.
37. Paragraph 48 replaces European expenditure in section 1218ZCF of CTA 2009 (‘amount of relief for museum or gallery exhibition’) with UK expenditure.
38. Paragraph 49 sets out transitional provisions for the change made by Paragraph 48. Sub-paragraph (4) allows for European expenditure incurred before 1 April 2024 to count as UK expenditure for the purposes of section 1218ZCF as amended by Paragraph 48.
39. Sub-paragraph (5) explains that production companies with exhibitions which enter production before 1 April 2024 may elect for European expenditure to count as UK expenditure for those exhibitions up to 1 April 2025.
40. Paragraph 50 amends section 121ZCG of CTA 2009 (‘expenditure that qualifies for museums and galleries exhibition tax relief’) to exclude connected party profit from qualifying expenditure.
41. Sub-paragraph (3) defines connected party profit as the excess of the payment made to a connected party for supplying, transferring or doing something over the cost incurred by the connected party in supplying, transferring or doing that thing. For example, if company 1 pays connected company 2 £100 for a service, and providing that service costs company 2 only £75, company 1’s qualifying expenditure will be £75. The remaining £25 is the connected party profit.
42. Sub-paragraph (3) also makes provision to exclude connected party profit where payments flow through a chain of connected parties. For example, if company 1 sells a product worth £50 to connected company 2 for £100, and company 2 sells it on to company 3 for £100, company 3’s qualifying expenditure will still be only £50. The provision applies no matter how long the chain is.
43. Paragraph 51 inserts new section 1218ZCLA (‘no claim if company not going concern’). A company may only claim relief when it is a going concern. A company is a going concern if it prepares its financial accounts on a going concern basis, unless the going concern basis is used only to remain eligible for relief. A company that is in administration or liquidation cannot make a claim. A company which does not prepare its accounts on a going concern basis can still claim relief if the only reason that the accounts are not prepared in that way is because the company transfers the separate exhibition trade to a fellow group company.
Schedule 1: Part 9: General administrative matters
44. Paragraph 52 amends paragraph 52 of Schedule 18 to FA 1998 to expand the circumstances in which HM Revenue and Customs can issue discovery assessments to recover overpaid creatives reliefs tax credits. Discovery assessments for creatives reliefs will no longer be subject to the restrictions set by paragraphs 43 and 44 of Schedule 1 to FA 1998, which only allow discovery assessments where the customer has made a careless or deliberate error or HM Revenue and Customs could not reasonably have known an overpayment had been made.
45. Paragraph 53 amends the time limit for making a claim under Parts 14A to 15E of CTA 2009, which is set out in paragraph 83W of Schedule 1 to FA 1998. For periods of account of 18 months or less, the time limit is two years from the last day of the period. For longer periods of account, the time limit is 42 months from the first day of the period.
46. The amendments in this Part have effect for accounting periods beginning on or after 1 April 2024.
Background note
47. Administrative changes are being made to all the creative industry tax reliefs. These changes will streamline the process of making a claim and reduce the administrative burden on HM Revenue and Customs, as well as making it easier to tackle abuse. Additional changes are being made to the reliefs to correct anomalies and prevent abuse.
48. The audio-visual creative tax reliefs are being reformed to expenditure credits from 1 January 2024. The Audio-Visual Expenditure Credit (AVEC) will cover the current Film Tax Relief (FTR), High End Television tax relief (HETV tax relief), Animation Tax Relief (ATR) and Children’s TV Tax relief (CTR). The Video Games Expenditure Credit (VGEC) will cover the existing Video Games Tax Relief (VGTR). The administrative changes for the audiovisual reliefs will come into force from 1 January 2024 to align with the commencement of the new expenditure credits.
49. The cultural reliefs include Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR). For these reliefs, eligible expenditure will also change from European to UK to ensure the reliefs meet our international obligations. The changes to the cultural reliefs, including the administrative changes and mandatory use of the online information form, will come into force from 1 April 2024.
50. If you have any questions about this change, or comments on the legislation, please contact Stephanie Martinez and Alice Williams at: [email protected] and [email protected].