Creative sector tax incentives can potentially be claimed by companies or charities producing: films; television programmes and animations; video games; theatrical and orchestral productions; and museum and gallery exhibitions. Claimants may be entitled to an additional tax deduction for up to 80 per cent of the qualifying expenditure and, where a loss is incurred, a payable tax credit of 25 per cent of the surrenderable loss is available. This can equate to up to 20 pence in the pound on qualifying spend.
Relief must be claimed - correctly
Although the creative sector tax incentives have been available for some time now, many potential claims have not been made. We also understand that a number of claims have been made incorrectly or without sufficient supporting information, meaning companies and charities have these claims challenged.
Care must be taken to ensure relief is maximised but also that claims are made correctly.
Matters to be aware of
The following areas highlight topical issues that may impact creative sector tax relief claims and which may be of interest when considering them.
- Special purchase vehicles (SPV) – HMRC will want to ensure that any SPV set up to undertake qualifying creative activities has appropriate economic substance – and that this is properly evidenced. Any intra-group transactions with related parties will also need to be on commercial terms in order for any claim to be successful.
- Production charges – any production charges will need to be on commercial terms, based on the service and benefit provided. It is vitally important that the basis for any such charge, in terms of the service and benefit provided, can be evidenced.
- Subcontracting – for video games, there is a cap of £1m for subcontractor payments and we are aware that this has constrained a number of claims. However, it is worth reviewing the nature of arrangements, as certain costs may not constitute non-qualifying subcontractor payments.
- Payments within four months – care must be taken to ensure all costs included in claims for a particular accounting period are paid within four months of the period end - relief will otherwise only be due in the period the costs are paid, rather than the period they are accrued.
- Travel costs – travel and accommodation costs may be eligible for theatrical and orchestral tax relief where, for example, individuals are required to travel to and stay at new venues and rehearse prior to performance.
The creative sector tax breaks are beneficial, but claiming relief can be highly complex. We would always recommend that professional advice is sought.
For more information please get in touch with Matt Appleton.