The ESC gave special treatment to theatre angels on the taxation of profits and losses arising from the backing of theatrical productions. This is now to be withdrawn from 31 March 2017. As a consequence of this treatment a practice had grown up whereby profits due to angels were treated as a deductible expense of the production as opposed to a distribution of profit.

With the proposed withdrawal of the ESC and the introduction of theatre tax relief in September 2014 HMRC stated that ‘this practice should not continue and distributions of profit must be regarded as just that’.

For corporate investor angels, HMRC accepts ‘that the consideration given for the use of the principal represents a commercial return and so can agree that s1000 (1) para E Corporation Tax Act 2010 is not in point. Thus the precedence given to para E by para F (b) and also s1032 (1) (c) will not apply for UK corporates’.

As a consequence the interest is not treated as a distribution and will be deductible as an expense.

The individual investor position will be affected and HMRC will withdraw the continuation of this practice for all new productions from 1 April 2017.

Productions currently using the practice and those commencing the practice before that date may continue to use the ‘grandfathering’ arrangements until 31 March 2019.

Affected companies and productions should notify HMRC of their intention to use the ‘grandfathering’ arrangements by 31 December 2016.

Notifications should be sent to des.ryan@hmrc.gsi.gov.uk stating the name of both the company and the relevant production.

Relevant guidance

Guidance on HMRC withdrawal of Extra-Statutory Concession (ESC) A94: Theatre Angels