A recent Government consultation on a new tax relief for orchestral companies is just the latest move to help what may be termed ‘creative’ companies.
As Tayside contains a significant number of creative organisations and businesses engaged in, for example, the games sector, the increase in creative-sector tax reliefs is worth looking at in some detail.
It all started in April 2013 when the Government introduced tax reliefs for animation and high-end television.
At that time it was proposed there would also be a video games tax relief available.
However, that relief was delayed due to concerns raised by the European Union and, in particular, the cultural requirements of such a relief.
The video games tax relief is now in place, effective from April 1 2014.
A final relief was introduced relevant to theatres and productions which is called the theatre tax relief and is effective for expenditure incurred after September 1 2014.
These new regimes only apply to companies, so structural changes may be required in order to unlock these.
The claims are made within the body of the company tax return, so the quicker the financial accounts are completed, the sooner the claim can be lodged.
Therefore, what readers need to know are the main criteria and benefits of these exciting new tax regimes.
All the new tax reliefs are derived using the concepts of ‘European Economic Area expenditure’ and ‘core expenditure’, with at least 25% of this expenditure requiring to be consumed in the EEA.
The relief works by allowing the company to take an additional deduction, which is capped at a percentage of core expenditure.
Two of these regimes, namely the video games and the animation tax relief, require the content to be certified by the British Film Institute (BFI) and pass what is referred to as a points-based cultural ‘test’.
Although this is referred to as a test, in our recent video games seminar in Dundee the BFI confirmed it will work with companies to try to help them meet this test.
Key to this step is making the application well in advance of any financial and taxation deadlines that may be coming along, as factoring in this application late in the day could have a detrimental impact on obtaining the tax relief.
Each regime is quite descriptive as to the nature of expenditure that has to be undertaken in order to obtain the tax relief but, assuming that the right type of expenditure is incurred, a valuable tax benefit will be obtained.
For example, in the context of video games tax relief, the relief is available to video games development companies primarily responsible for designing, producing and testing (not de-bugging) the game, but not for advertising, promotion or gambling purposes.
The extra tax relief is equal to the lower of the actual EEA expenditure and 80% of the core expenditure incurred.
This relief then reduces the tax payable for profitable companies or, in the case of loss-making companies, the enhanced loss can be surrendered back to HM Revenue & Customs for up to a 25% tax repayment.
The loss surrendered is capped by reference to the level of qualifying core expenditure.
Now, let us turn to the orchestra tax relief that is planned to be effective from April 1 of next year onwards.
From a cursory glance of the January 23 consultative document (responses required by March 5), this relief will follow a similar tune.
Therefore, provided the right type of company is identified and the correct core type of orchestra-related costs are claimed, there will be the potential for companies to claim a 25% repayable tax credit for touring loss-making companies, or a tax reduction for profitable companies.
In a similar manner to theatre tax relief, it is proposed that the rate will drop to 20% for non-touring orchestras.
At a time when Tayside is preparing for the cultural benefit of the V&A, the business sector should embrace these creative-sector tax reliefs.