Is your creative business making the most of tax reliefs?
I live in a ‘creative’ household. One son is on track for a career in the music industry, while the other is aiming for a life in film. I’m delighted for them. They know what they want to do and they are aiming for careers in one of the most vibrant and creative sectors of the economy.
But I’m also concerned for them, in that they are entering one of the most financially and commercially complex areas of business. It’s the original gig economy; engagements can be short term, and it can be feast or famine with long stretches without work followed by the need to be on the other side of the world for an indefinite period. Whichever section of the creative world you occupy, it can be easy to lose sight of the basics, to be taken advantage of and to lose track of the essentials of tax planning.
My own interest in tax planning for the creative sectors goes back to my years as head of tax at a major bank, and has been reignited of late by the ambitions of my sons. I’ve been exploring, reacquainting myself with that world. And it’s in good shape across the UK, and in great shape here in the South West.
So what are we talking about here – what are the ‘creative industries’? The Government defines the creative industries as:
“Those which have their origin in individual creativity, skill and talent, and which have a potential for wealth and job creation through the generation and exploitation of intellectual property.”
The Department for Digital, Culture, Media and Sport (DCMS) provides further qualification, as “a range of economic activities that are concerned with the generation or exploitation of information”. The DCMS exists to “drive growth” and “promote our cultural and artistic heritage and help businesses and communities to grow by investing in innovation”.
Nationally the creative industries represent 5.3% of the economy, and the DCMS reported in February 2018 that 9% of DCMS-related businesses were located in our region, second only to London and the South East and equal to the North West in terms of presence. The innovation charity Nesta identifies Exeter, Bath, Bristol and Trowbridge as creative hotspots.
The sector grew at twice the pace of the rest of the economy in 2016, and we need to ensure that specialist knowledge gaps are filled so that we support regional growth, and this important sector can thrive. With 94% of creative businesses employing fewer than 10 people and over 85% seeing a turnover of less than £250,000, it’s likely that owner managers might not have the headroom to plan long term or to realise the tax advantages afforded to the creative sector in the UK.
Recent governments have taken huge steps to pump prime the creative sectors by establishing a set of special corporate reliefs which may apply where a company is liable to Corporation Tax. Businesses eligible for these reliefs include:
- film production companies producing films (whether or not the films are intended for cinema release)
- TV production companies producing relevant animation, children’s or high-end television programmes
- video games producers
- theatrical and orchestral production companies
- museums and galleries which claim relief for an exhibition.
Starting with the film industry and phasing in since 2007, this bundle of tax reliefs are intended to promote the sustainable production of British films, high-end television (comedy, drama, documentaries), video games, theatre productions and others listed above. Naturally, there are conditions that apply and the overarching requirement is for organisations applying for tax relief to be able to demonstrate that they pass ‘the cultural test’. This certifies, through an internationally agreed co-production treaty, that a production is a British film, British programme or British video game.
In July 2018, HM Revenue and Customs reported its latest view of the value of credits claimed across the sector, with £852m of tax credits allocated across the sector in 2017 alone. The longest established tax credit applies to the film industry which, since 2007, has benefitted companies to the tune of £2.7bn overall, through 4,495 claims. Video Games Tax Relief was one of the more recent introductions, taking effect in April 2014; since that date, 770 claims have amounted to around £230m in relief granted. So there are tax reliefs out there, and they are accessible to qualifying companies.
At Old Mill we work with clients in the creative sector to access those reliefs, by gaining a thorough understanding of their business, determining eligibility, identifying qualifying expenditure, and preparing and submitting the necessary documentation. We can take the pain out of the process for you, and allow you to maintain focus on your business.
A successful application could offer a valuable cash injection to your business, even if it is not yet at the point where you are paying Corporation Tax. If you want to find out more about how we can help you with your creative business, please get in touch.