Often tax reliefs for innovation are thought to be the preserve of scientists in white coats, software businesses and consumer goods companies. The creative industry is often overlooked yet is clearly eligible to claim cash credits with the government looking to maintain the UK’s cultural and arts scene. As such, there are 8 different tax credits available that have been targeted at encouraging development/production in the UK:
- Animation Relief
- High End-TV Relief
- Children’s TV Relief
- Video Games Relief
- Film Tax Relief
- Theatre Tax Relief
- Orchestra Tax Relief
- Museum and Galleries Exhibition Tax Relief
To be eligible for the creative tax reliefs, companies must be actively engaged in planning and decision making, directly contracting and negotiating and paying for rights, goods and services (the production/development company). The content must be produced and intended for broadcast/supply to the general public and all animations, films, and TV productions must be certified as culturally British. This is assessed using a point based test with companies needing to achieve c.18 points out of 35 (depending on the relief applied for). There are some restrictions such as companies cannot claim both R&D and Video Games Tax Relief on the same spend, and we can help you model how R&D credits and the creative reliefs interact.
Example Benefit:
| £’000 | |
| Income | 300 |
| Expenditure | -200 |
| Trading profit before creatives relief | 100 |
| Additional deduction lower of: | |
| 100% of EEA expenditure | 200 |
| 80% of total core expenditure | 160 |
| -160 | |
| Trading profit/loss after creatives relief | -60 |
| Surrenderable loss lower of: | |
| – Loss of separate trade | -60 |
| – Enhancable expenditure | -160 |
| Repayable credit at 25% | 15 |
Without creatives relief the company would have had to pay corporation tax of £19,000 (19% x the pre creatives relief profit of £100k).
The total cash tax saving from claiming the creatives relief is therefore £34,000.
Companies can claim an additional deduction for the lower of 80% of total core expenditure or 100% of EEA core expenditure. A generous cash credit of up to 25% of qualifying expenditure is available which reduces profits, or a payable cash credit similar to the SME R&D tax credit can be taken.
This tax incentive illustrates the importance placed upon maintaining and developing cultural activities in the UK. The Government has set aside billions of pounds to encourage innovation in the sector and this opportunity should be acted upon.
Did you know? R&D tax reliefs are changing from April 2023. Register for our webinar to find out more.