September 19, 2016

The ESC gave special treatment to “Theatre angels” regarding the taxation of profits and losses arising from investment in theatrical productions. HMRC has announced that this is to be withdrawn from 31 March 2017.

As a consequence of this treatment a practice had grown up whereby profits due to “angels” were treated as a deductible expense of the production as opposed to a distribution of profit. With the proposed withdrawal of the ESC and the introduction of Theatre Tax relief in September 2014, the Government says that this practice should not continue and distributions of profit must be regarded as just that.

For corporate investor angels HMRC says that it accepts the proposition that the consideration given for the use of the principal represents a commercial return and so agrees that s 1000(1) paragraph E of the Corporation Tax Act 2010 is not in point. Thus, the precedence given to paragraph E by paragraph F (b) and also s 1032(1)(c) will not apply for UK corporates.  As a consequence, the interest is not treated as a distribution and will be deductible as an expense.

The individual investor position will be affected and HMRC proposes to withdraw the continuation of this practice for all new productions from 1 April 2017. Productions currently using the practice and those commencing the practice before that date may continue to use the “grandfathering” arrangements until 31 March 2019.

Affected companies and productions should notify HMRC of their intention to take advantage of the “grandfathering” arrangements by 31 December 2016. For further information, click here.