Creative Industries Tax Relief: how does loss relief work?

The Creative Industries Tax Relief regime was introduced 13 years ago now, and proved so successful that 8 sectors are now eligible for the relief. Many productions won’t begin to generate a profit until the production is finalised. As such, loss relief provisions are in place, meaning the loss can be surrendered for a tax credit of up to 25%.

This said, the loss relief process remains complex, and the 2017 carry forward loss regime has complicated matters even more.

Am I eligible?

To qualify for loss relief, there are some industry specific requirements, but the basic conditions remain mostly the same. Firstly, the general public should be able to access all productions, unless they have been created for educational purposes.

Secondly, all productions (except orchestras, theatrical productions, museums and galleries) need to prove that they are British in origin. This is done by passing a cultural test, or through a co-production treaty. Costs must be rooted in the UK for film and TV productions as well. At least 10% of expenditure for films or TV shows, has to relate to the UK. For all other productions, 25% of expenditure has to be spent within the European Economic Arena. Both of these requirements lead to questions over Brexit.

However, the British Film Institute have predicted that the regime won’t be effected, believing that content from the EEA will still be recognised, no matter what the final result of Brexit is.

Stages of loss relief

For loss-making companies the stage at which the loss occurs in the production process, determines how that loss is treated. Two distinct stages have been outlined, wherein the loss may occur: pre-completion and relevant later.

The relevant later period, is the stage where the production is either completed or abandoned. This period also includes post-production periods, where trade might still be ongoing. For orchestras, theatre productions and museum/gallery exhibitions, this stage isn’t relevant because once their production is completed, all activity ceases.

Carry forward loss relief

The stage which the loss is carried into, also effects the treatment of the loss. If a loss is created in the pre-completion periods, and then carried into a relevant later period, it’s classed as a current year loss. So, it can be offset against the total profits of the previous 12 months, current period, or surrendered as group relief. Non-attributable losses which come about in the post-completion periods, are treated as any other trade losses. Meaning that they can be offset against the current period’s total profits, carried forward, or surrendered as group relief.

As of 1^st April 2017, if the losses are carried forward and offset against total profits, rather than trading profits, relief is restricted to 50% of relevant profits. They are also subject to a £5million deductions allowance. If you’re looking to claim loss relief after April 1^st 2017, you should bare this in mind.

How can we help?

The process of claiming loss relief can be a minefield. If you’re unsure as to where your company stands when it comes to claiming loss relief, our tax incentives and reliefs team is on hand to advise you. Get in touch today, to find out how we can help with creative tax relief today.