BIM66601 - Theatre backers
Overview
Theatre backers or angels are people who put up money to finance
a theatrical production. If the show is successful their money is
first repaid, and then they receive a share in any profit. If the
show is a failure they may lose not only the possibility of a
profit but also part or all of their original investment.
Profits from a production for a particular year are amounts
received which do not represent the repayment of the investment.
Losses can only be computed when there is no further prospect of a
return from the investment.
Unless the angel uses ESC/A94, the treatment of profits and
losses is as follows:
- profits are liable under Case III of Schedule D;
- there is no Income Tax relief for losses;
- losses may attract CGT loss relief;
- if an angel works in a trade or profession within the theatre then, depending on the facts, his or her activities as a backer may be part of that trade. But this will not be the case for most angels.
CGT losses will be of no use unless the angel has chargeable gains. So, where an angel backs various productions, the strict treatment may result in profits being liable to Income Tax with no relief for losses.
ESC/A94
Under ESC/A94, UK resident angels can set losses from one show
against profits from another. The concession is reproduced in
booklet IR1 or can be found by searching on ESC/A94. The concession
operates by applying the Schedule D Case VI rules to profits or
losses arising to UK resident angels from theatre backing. So
losses may be offset against other Case VI income of the year
concerned, or carried forward and set off against later Case VI
income (See
BIM80130 - BIM80140 for more on Case VI
losses).
The purpose of the concession is to allow offsetting of
losses in this way, not to allow expenses which might be allowed if
the income were, in law, liable under Schedule D Case VI.
Where the concessionary treatment is given, the loss will not
also qualify as a capital loss.
Deduction of tax
The concessional Case VI treatment does not change the true Case
III nature of the payments. Payers of sums chargeable under Case
III have a right to deduct tax if the payment falls within
ICTA88/S348 (1) and an obligation to deduct tax if the payment
falls within ICTA88/S349 (1). All payments by incorporated payers
will fall within Section 349(1). According to the terms of the
concession, the Inland Revenue will not insist on deduction of tax
from payments to theatre angels for their theatrical investments if
the angel's usual place of abode is in the United Kingdom. Payers
may, however, exercise the right to deduct tax if they wish. (See
IM3900+ for more on deduction of tax at source.)
The place of abode is a practical test which the payer can
apply; the payer is not likely to know the residence status of the
recipient for tax purposes.
Theatre angels who are not resident in the United Kingdom may
be able to obtain authority for tax not to be deducted from
payments made to them in respect of their theatrical investments,
if they are resident in a country which has a Double Taxation
Agreement with the United Kingdom which contains an Other Income
article (see DT161). Claims from non-residents for repayment of
United Kingdom tax and/or applications from non-residents for
exemption from deduction of United Kingdom tax should be sent to
Inland Revenue International, Centre for Non-residents, Fitzroy
House, PO Box 46, Nottingham NG2 1BD.
