Are your clients claiming their Creative Industry tax reliefs?

By Sandra Lee – Director, Creative Tax Reliefs Limited

In 2018/19 HMRC paid out over £1bn in tax credits to companies within the film, theatre, TV, video games, animation, orchestra and museums and galleries sectors.

Unfortunately, some companies – as well as their accountants – remain unaware that these reliefs are available to them. This is particularly true of charitable companies who assume, incorrectly, that the exemption from Corporation Tax available to charitable companies somehow prevents them from claiming the tax credit.

“Working together with accountants and their clients, we ensure that companies receive the benefit they are due,” says Graham Suggett, Director of Creative Tax Reliefs Ltd.

The Creative Industry tax reliefs

The Creative Industry tax reliefs are a group of eight tax reliefs available to companies in the film, theatre, TV, video games, animation, orchestra and museums and galleries sectors.

Film Tax Relief (FTR), was the first of the Creative Industry tax reliefs and was introduced in 2007.  Following its success, it was followed by tax reliefs for companies in the TV, Video Games, Theatre, Children’s TV and Animation, Orchestra and Museums and Galleries sectors.

To qualify, a company must produce a qualifying film, TV programme, animation, video game, theatrical production, orchestral concert or exhibition.

How do the reliefs work?

The reliefs work by treating each qualifying production as a ‘deemed’ trade for tax purposes. The company receives an additional deduction based on the costs of creating the qualifying production (i.e. film, video game, theatrical production, tv programme, animation, orchestral concert or museums or gallery exhibition). This additional deduction will first reduce the companies taxable profit, or surplus in the case of a charitable company. Where the additional deduction creates or extends a loss, the loss related to the additional deduction can be surrendered to HMRC for a payable tax credit. The tax credits are paid at a rate between 20 percent and 25 percent depending upon the specific relief and the ability to surrender losses applies equally to charities as it does to commercial companies.

“Charities often have difficulty understanding how they can benefit from a Corporation Tax relief and receive a tax credit, when they pay no Corporation Tax” explains Graham. “The answer is that the reliefs are available to eligible companies producing qualifying productions and are not dependent upon the payment of Corporation Tax.”

Although, the success of FTR led to the later reliefs and, whilst they all function in the same way, there are of course notable differences. One major difference concerns the need for qualifying films, video games, high-end and childrens’ television programmes and animations to obtain certification as culturally British from the BFI’s Certification Unit.

The Cultural Test is points-based, with sections relating to content, cultural contribution, location, and cast and crew. To achieve certification films, high-end and children’s television programmes need to achieve 18 of the available points whilst animations and video games need to achieve 16 of the available points.

Graham explains that “Although the process of applying for certification can be somewhat bureaucratic and daunting, particularly for first time applicants, the BFI Certification Unit are extremely supportive during the process and provide a huge amount of support to companies and the industries the tax reliefs were introduced to support.”

How we can help?

Creative Tax Reliefs Limited was formed in 2017 by Graham Suggett, former lead tax specialist with HMRC’s Creative Industries Unit. Graham spent 16 years as a tax inspector, the last four years of which were with the Creative Industries Unit where he led on complex technical issues, providing technical support and advice to companies seeking to claim the tax reliefs, to external accountants and to other tax specialists within HMRC. Graham also liaised with both internal stakeholders (including HMRC’s Policy Leads, Charities Section and Criminals Investigations) and external stakeholders (including the BFI, Ukie, SOLT and the ABO).

“Working as a tax specialist with HMRC’s Creative Industries Unit was the most interesting and rewarding role I ever had during my time with HMRC. However, a lot of companies and their advisers were struggling to understand how the reliefs work which resulted in them either claiming too little or claiming too much and running the risk of an enquiry. It was also obvious that a lot of companies simply weren’t claiming. Whilst there were a few practices in London that had specialist teams, there was no consultancy that specialised solely in the Creative Industry tax reliefs” explains Graham.

Seeing this as an opportunity to work with creative companies directly, Graham left HMRC and set up Creative Tax Reliefs Limited, a company that specialises solely in the Creative Industry tax reliefs. Since the company started in April 2017, Creative Tax Reliefs Limited has claimed almost £3m in tax credits for theatre, orchestras, video games and film companies. Over half of which has been for charitable companies.

Graham is keen to emphasise that “we are specialists in helping creative companies claim the tax relief to which they are entitled. We are not accountants and we do not prepare accounts. We work with companies and their advisers to ensure that the companies correctly claim the tax reliefs and tax credits they are entitled to.” The accountant can introduce their client safe in the knowledge that they will be provided with specialist support and by doing so, strengthen the relationship they have with their client as well as add value to the practice.

The process

Graham explains the process: “Once the client is introduced to us, we will work with them to prepare the detailed computations that HMRC require in support of claims to a Creative Industry tax reliefs. Once the computations are prepared, the claims can be submitted. Claims are made in a Company Tax Return or an amendment to a Company Tax Return (subject to the usual time limits). Claims can often impact on multiple years and require the re-writing of the CT computations and we do all of this. We submit the claims and also deal with any questions that HMRC may raise.”

Creative Tax Reliefs work on a commission basis and charge 15 percent of the benefit obtained by the client. This benefit includes any payable tax credit, reduction in Corporation Tax due or a refund of Corporation Tax already paid. Whilst working on a commission basis works for most clients, it might not work for the smaller or larger ones in which case Graham says “We are happy to cap the fee payable at a level that works for all parties. We want clients and their advisers to be happy with the service we provide and to come back year on year.”

The client receives the payment directly from HMRC and Creative Tax Reliefs issue their invoice only when HMRC have accepted and paid the claim. Importantly, if no benefit is due, then there is no charge.  In effect, by bringing in a specialist, the additional benefit obtained by the company will often cover the costs in which case it makes sense to do so.

Graham is happy to advise during the development stage of a project through to completion as well as support companies whose claims are the subject of enquiry by HMRC.

Graham states “We often come across companies that have missed out due to their failure to claim one of the creative tax reliefs which is always disappointing. From my own experience as a tax inspector for 16 years, I understand how challenging it can be to keep on top of new legislation and this is particularly true of sectors where the accountant might have few clients. Therefore, it makes sense to work with a specialist who understands how the legislation works.”

One accountant that Graham has worked with is Ian Bragger, partner at Harris & Co. Ian sums up the benefits of working with a specialist:-

“I found Graham and Creative Tax Reliefs through a Google search as we had a client that was eligible for Theatre Tax Relief (TTR). I and a colleague had read through HMRC’s guidance a number of times and felt confident that we understood how it worked, however, we had no experience in claiming TTR. It seemed a no-brainer to work with Graham because Graham, as a former Creative Tax Reliefs specialist with HMRC, knew how to prepare and present claims to HMRC, would be certain of the calculations, knew where the boundaries were and would achieve maximum benefit for the client. We prepared the accounts and submitted the CT600 as per usual with input from Graham whilst he liaised directly with HMRC’s Creative Industries Unit in respect of the client’s TTR claim. The client received their tax credit without issue and in an amount greater than expected. Our client was delighted as were we and we look forward to working with Graham going forward.”

More information including factsheets can be found via the company’s website.

For an informal discussion about how we can help you help your clients, Graham can be contacted via email at: [email protected]