TTR50110 - Eligible expenditure: apportionments: just and reasonable

S1217GB and S1217GC Corporation Tax Act 2009

The amount of Theatre Tax Relief (TTR) to which a Theatrical Production Company (TPC) is entitled in respect of a separate theatrical trade is determined by the amount of core expenditure (TTR50010) that is UK expenditure.

It is therefore necessary to determine:

• the amount of core expenditure, and
• the extent to which that core expenditure relates to goods or services that used or consumed in the UK (TPC50080).

European expenditure

Prior to 1 April 2024, European expenditure was used instead of UK expenditure. Please see TTR50050 and TTR50090 for details.

 

Determining the amount of core expenditure

Where expenditure relates solely to producing the production or closing the production it will all be core expenditure.

Where expenditure does not relate to producing the production or closing the production none of it will be core expenditure.

However, where expenditure relates partly to producing the production and/or closing the production and partly to other activities it will be necessary to apportion the expenditure between core expenditure and non-core expenditure.

The method for making an apportionment is not fixed and can be determined on a case by case basis.  The key criterion is that the apportionment must be done on a just and reasonable basis.

Determining the extent to which core expenditure is UK expenditure

Once the amount of core expenditure has been determined it is then necessary to determine the extent to which that expenditure relates to goods or services that are used or consumed in the UK.

Core expenditure relating to specific goods will be UK expenditure to the extent that they are used in the UK. Where goods are used partly in the UK and partly overseas, it may be necessary to make an apportionment of the relevant core expenditure between UK and non-UK expenditure.

Where a production is partly produced in the UK and partly outside the UK it follows that some services will be used or consumed in more than one territory.  In such cases, again it may be necessary to make an apportionment of the relevant core expenditure between UK and non-UK expenditure.

Apportionment of core expenditure between UK and non-UK expenditure applies only to goods and services provided in relation to the production and closing phases of the theatrical production. It is not necessary to apportion non-core expenditure.

The method for making an apportionment is not fixed and can be determined on a case by case basis.  The key criterion is that the apportionment must be done on a just and reasonable basis.

More than one just and reasonable basis

There will often be more than one just and reasonable basis.  The requirement is not that the apportionment must be made using the fairest and most reasonable basis, but simply that it must be made on a basis that is just and reasonable.

It is, however, expected that a chosen methodology will be used consistently.

Use of allocation keys

It may be that expenditure cannot be easily apportioned or that considerable effort is required to do so.  Where this is the case, it may be just and reasonable to base the apportionment on other expenditure that is considered to be related.  This should provide a just and reasonable approximation.

Impact of the result

What is a just and reasonable method of apportionment in any particular case should have regard to the likely impact of the result.

Where the method used involves larger costs, or is used as an allocation key for a larger cost, more consideration is required as to what is just and reasonable.

Example

Two principal actors, Mr A and Ms B, are paid fees of £100k and £50k, respectively, for performing in a theatrical production.  The play is produced partly outside of the UK and partly in the UK.

The actors commit to rehearsing for two weeks outside the UK and two weeks in the UK prior to performing live during a four week run.  Both actors commit to making themselves available throughout these periods.  However, they are not required for the full length of time.

-	Mr A	Ms B
Days available for rehearsals outside the UK	14	14
Days available for rehearsals in the UK	14	14
Days available for live performances	28	28
Total days available	56	56
-	-	-
Actual rehearsal days outside the UK	10	3
Actual rehearsal days in the UK	5	9
Actual live performance days	28	28
Total days actually rehearsing/performing	43	40

 From this information, it is possible to apportion using two different just and reasonable methods.  Each method may be used.

Step 1: determining the amount of core expenditure

It is first necessary to determine the amount of core expenditure.  That is, the proportion of the actor's fees that relate to producing the production rather than to running the production.

It would be reasonable to apportion the actor's fees between core and non-core expenditure based on the time that each has made themselves available.  That is, 50% for rehearsals (production) and 50% for live performances (running).

The total fees apportioned to core expenditure would be £75k ((£100k + £50k) x 50%).

It would also be reasonable to apportion the actor's fees between core and non-core expenditure based on the days that each spent actually rehearsing and performing live.  In that case, the proportions of Mr A and Ms B's fees attributed to core expenditure would be 35% (15/43 x 100) and 30% (12/40 x 100), respectively.

The total fees apportioned to core expenditure would be £50k ((£100k x 35%) + (£50k x 30%)).

Summary

Method of apportionment	Availability	Availability	Actual	Actual
Actor	Mr A	Ms B	Mr A	Ms B
Actors fee	£100k	£50k	£100k	£50k
Core proportion	50% (28/56)	50% (28/56)	35% (15/43)	30% (12/40)
Core expenditure	£50k	£25k	£35k	£15k
Total core expenditure	-	£75k	-	£50k

 Step 2: UK expenditure

Having determined the amount of core expenditure it is then necessary to determine the extent to which that expenditure relates to goods or services that are used or consumed in the UK. The actors' services are used where they spend time performing, so days in the UK are UK expenditure and days overseas are not UK expenditure.

Again, it is possible to apportion using two different just and reasonable methods.  However, a chosen method should be used consistently where possible.  It would not be just to 'cherry pick' and apportion Mr A's fees by reference to his availability and Ms B's fees by reference to days spent actually rehearsing and performing live.

Based on availability, the proportion of the core expenditure on the actor's fees attributed to UK expenditure would be 50% (14/28 x 100).

Of the £75k core expenditure on the actor's fees, £37.5k (£75k x 50%) would be UK expenditure.

Based on days spent actually rehearsing and performing live, the proportions of the core expenditure on Mr A and Ms B's fees attributed to UK expenditure would be 33% (5/15 x 100) and 75% (9/12 x 100), respectively.

Of the £50k core expenditure on the actor's fees, £22,800 ((£35k x 33%) + (£15k x 75%)) would be UK expenditure.

Summary

Total core expenditure	-	£75k	-	£50k
UK proportion	50% (14/28)	50% (14/28)	33% (5/15)	75% (9/12)
UK expenditure	£25k	£12.5k	£11,550	£11,250
Total UK expenditure	-	£37.5k	-	£22,800