What is qualifying expenditure for theatre tax relief under section 1217JA of the Corporation Tax Act 2009?

Qualifying expenditure is core expenditure on a theatrical production that is taken into account when calculating the profit or loss of the company's separate theatrical trade for tax purposes. It must not be excluded expenditure, such as costs already eligible for research and development relief or amounts representing connected party profit elements.

How does section 1217JA restrict connected party payments from qualifying expenditure?

Where a production company pays a connected party, any profit element in the payment is excluded from qualifying expenditure. Only the connected party's actual cost qualifies. However, this restriction does not apply if the payment reflects an arm's length price, meaning it is no more than what independent parties would have agreed.

How does section 1217JA treat chains of connected party transactions?

Where supplies pass through a chain of connected parties or transactions forming part of a single scheme, the legislation looks back to the cost incurred by the very first supplier in the chain. The arm's length test is then applied to every transaction in the sequence, preventing artificial inflation of qualifying expenditure through connected intermediaries.

Can expenditure qualify for both theatre tax relief and research and development relief under the Corporation Tax Act 2009?

No. Section 1217JA specifically excludes expenditure from qualifying for theatre tax relief if the company is able to claim relief on the same spending under the research and development provisions in Part 13 of the Corporation Tax Act 2009. This prevents double relief on the same costs.

Corporation Tax Act 2009 section 1217JA

Qualifying expenditure

Section 1217JA defines what counts as "qualifying expenditure" for a theatrical production, setting out the types of core expenditure that can benefit from theatre tax relief and the circumstances in which expenditure is excluded.

Qualifying expenditure is core expenditure on a theatrical production that is taken into account when calculating the profit or loss of the separate theatrical trade for tax purposes, provided it is not excluded.
Expenditure is excluded if the company could claim relief on the same spending under the research and development provisions in Part 13 of the Corporation Tax Act 2009.
Expenditure paid to a connected party is excluded to the extent it includes a profit element for that connected party, unless the payment reflects what would have been agreed in an arm's length transaction.
Where a supply passes through a chain of connected parties or transactions forming part of a single scheme, the connected party profit test looks back to the cost incurred by the first supplier in the chain, and the arm's length test is applied to each transaction in the sequence.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member