Tax Relief Claims Hide Sharp Fall In UK Feature Film Spending

by Robert Lee, Tax-News.com, London

28 September 2009

The UK Treasury has released new figures which claim to demonstrate the success of a government tax relief scheme designed to encourage investment in the British film industry, although they fail to mention an alarming drop in spending by UK feature films over the past three years since the removal of a tax incentive scheme.

According to the Treasury, more than GBP100m (USD160m) in tax relief was claimed in 2008/9 to support the making of over 170 UK films.

Financial Secretary to the Treasury, Stephen Timms, said: "The government is committed to supporting the British film industry and the important role it plays in our economy. Today’s figures are excellent news for the industry, highlighting the success of the UK’s film tax relief which is helping to stimulate investment in domestic film production. Film tax relief will continue to provide valuable assistance to this vibrant sector over the coming years."

Minister for the Creative Industries, Siôn Simon, added: "The UK has been responsible for some tremendously successful films in the past year, both artistically and at the box office. Without film tax relief this level of success simply wouldn’t be possible, with many of the big hits of recent years never making it into production. Our thriving film industry creates jobs, attracts overseas investment, brings tourists to the UK and contributes a huge amount to our cultural heritage, so film tax relief is an investment that is repaid many times over."

The tax relief scheme, introduced in 2007, increases the amount of expenditure in film production that is deductible for tax purposes. For a film to be eligible it must qualify as British, either by passing the 'cultural test' administered by the Department for Culture, Media and Sport, or under an agreed co-production treaty. Additionally, at least 25% of the total production expenditure must be incurred in the UK.

Relief can only be claimed on production expenditure incurred in the UK, up to a maximum of 80% of the total budget. A higher rate of relief is available for limited-budget films (those with total production expenditure of GBP20m or less). Companies not making a profit may be able to surrender the relief for a payable tax credit worth up to 20% of the total budget for a limited-budget film and up to 16% for other films. A higher value of support may be achieved if the relief is not surrendered but used instead to reduce the company’s tax liabilities.

According to the Treasury the figures also demonstrate the "positive effect" of HM Revenue & Customs dedicated Film Tax Credit Unit, which handles claims for the relief and paid over 95% of claims within 6 months of them being received.

However, the Treasury's announcement glosses over the fact that UK feature film production spend has dropped from GBP840m in 2006, when the old 'section 48' tax incentives were in force, to GBP578m in 2008, when the new credit for film production companies applied.

“In recent years the UK film industry has been driven by income tax incentives to encourage people to invest in British films," observed David Nickson, Media Tax Partner at KPMG. "However in recent Budgets such incentives have been steadily removed by HMRC and replaced by a tax credit for UK film production companies."

He added that while the new film tax credit is "still a very welcome benefit," the decline in spending "clearly coincides with the removal of investor tax incentives."

“So while this GBP100m in tax relief will no doubt have been a boost to the UK film industry, a balance still needs to be achieved between tax relief and incentives to help the film industry maintain the successes of recent years. We very much support the reintroduction of income tax incentives to encourage individual investment in British films,” Nickson concluded.

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