HMRC creates its own theatre farce

Today’s Blog concerns the highly entertaining but farcical tribunal case of a charity ‘Thursford Enterprises Ltd’, who in 2017 put on what they billed as The Christmas Spectacular and claimed 20% theatre tax relief.

The charity had produced a Christmas show and claimed theatre tax relief but, despite the show featuring dozens of actors, singers, flamboyantly dressed dancers and even circus jugglers, HMRC decided to play the villain of the piece and deem the show not to be a dramatic production.

What is Theatre Tax Relief (TTR)

TTR was a 2014 provision introduced by George Osborne to “make sure our theatre producers and performing arts can continue to entertain and capture audience’s imaginations”. TTR is processed through the Corporation Tax system and is available to limited companies, both commercial and charitable, that produce qualifying theatrical productions.

The scheme works by enhancing expenditure incurred in staging the production and creates an additional deduction to be set against the profit or loss of a company. The additional deduction reduces the profits assessable for Corporation Tax and when the deduction increases or creates a loss, a request can be made to HMRC for a payable tax credit, for which charitable companies are also eligible.

Theatre Tax Relief: Role play

To qualify the performance had to be a theatrical production, in this case a dramatic production defined as “a production of a play, opera, musical, or other dramatic piece” in which “the actors, singers, dancers or other performers are to give their performances wholly or mainly through the playing of roles”.

George Osborne drafted the tax relief to be pretty widely interpreted including ballets and circuses but excluding, things such as promotional activities, competitions, anything involving wild animals or productions of a sexual nature (where content was included “solely or principally for the purposes of sexually stimulating any member of the audience”).

Theatre Tax Relief: Non-stop extravaganza

Thursford Enterprises’ annual yuletide production is a major undertaking. This “extravaganza of non-stop singing, dancing, humour, and variety” takes place every year in a purpose-built auditorium. It always sells out, runs for three hours and features more than 65 musical pieces and the talents of a cast of over 100.

It would take a veritable Scrooge to deny tax relief to a charity trying to bring happiness to thousands of theatregoers from across the country, but that is the role in which HMRC cast itself.

Theatre Tax Relief: It’s showtime

To give you a quick flavour of the 3-hour show, the acts included:

• A solo singer in a flowing white 1940s-style dress and chorus ensemble dressed in top hat and tails, plus high-kicking flamboyantly dressed dancers with feather headdresses, performing a song
• A juggler, performing to Cactus Polka played on the Wurlitzer organ – he does not speak but engages the audience with a sense of both humour and, to a degree, jeopardy
• 18 male dancers dressed as toy soldiers pretending to play trombones while the orchestra plays Seventy-Six Trombones
• A five-minute Fred Astaire medley
• And the finale, a flight of doves over the audience as the show closes, symbolising the peace of Christmas.

Theatre Tax Relief: Let me tell you a story

HMRC did not seek to allege that The Christmas Spectacular was of a sexual nature or that the release of doves disbarred the TTR claim for including wild animals. No, instead they claimed that the performance did not fall within the definition of “other dramatic piece”.

To succeed, they had to prove that the show was outside the statutory definition which stated: “Plays, operas, musicals or other dramatic pieces are theatrical productions if the playing of roles is the whole or major part of what is done by persons performing, each performance is live to an audience before whom the performers are actually present.”

HMRC suggested that they required “evidence of a storyline or narrative which could be clearly followed through the characters”, although the legislation said nothing of the kind. The appellant’s counsel cited Waiting for Godot by Samuel Beckett and Cats by Andrew Lloyd Webber as examples of qualifying productions that lacked a traditional story.

HMRC however took an opposing view, believing that a story was necessary, with its counsel contending that if Thursford claim was allowed in would open the door for pop concerts and stand-up comedians to claim. The tribunal took a commonsense position and fundamentally disagreed with HMRC.

Theatre Tax Relief: A cast of characters

HMRC having lost with Plan A, then tried Plan B and contended that the performers were not involved in “playing of roles”. They interpreted this as requiring an entertainer to perform “outside normal life”, whatever that means. The producers’ counterargument was that “Each performer was playing the role given to them by reference to the direction received from the script and producer/choreographer.” They also argued that everyone involved was a professional performer paid to play a role in that none of them was playing themselves.

HMRC’s accepted that in certain scenes performers were playing a role but suggested that in others they were “presenting a skill/being themselves as singers or dancers as there was a lack of continuity and characterisation to justify the performance as the playing of a role.” Once again, the tribunal disagreed.

Theatre Tax Relief: A last curtain call

HMRC in a final throw of the dice, contended that if they lost this case, the Royal Variety Performance, pop concerts and karaoke productions would qualify for relief. This argument was also thrown out by the tribunal primarily because in such cases the individuals would be performing as themselves.

Tax Accountant’s view

With a long backlog of serious cases in the pipeline, most involving serious fraud, why oh why did HMRC decide to take this dubious case to court. They really do need to get their priorities sorted out!