Top Film Producer Defends UK’s Section 48 Film Tax Breaks

by Robert Lee, Tax-News.com, London

12 May 2005

Describing a rather bleak outlook for the British film industry, the respected producer Michael Kuhn has cited the government's lack of support for the country's industry through the tax system as one of the main reasons why the industry is facing its "bleakest prospects" for twenty years.

Speaking to members of the independent film community in London, Kuhn, the former president of Polygram and now chairman of Qwerty Films, said that the difficulty faced by British films in obtaining studio funding and lottery funds meant that there was a heavy reliance on tax incentives.

"As many of these sources of funding are expiring or are themselves dependent on tax regimes, there is less equity about. So the hour is dark. Darker, I think, than in most years in my lifetime," he warned.

Last year, Chancellor of the Exchequer Gordon Brown announced that the current tax incentive regime for the British film industry, known as Section 48, is to be scrapped from July this year. The Treasury's rationale for the move was that the system had become too easily abused by film financiers using the system merely to offset production costs regardless of whether the film actually went into production. However Kuhn refutes this, saying in his speech that exploitation of the Section 48 system has largely ceased.

In its place, the Treasury has drawn up draft legislation for a new system of tax incentives, which it argues will be less open to abuse whilst providing British film backers with better incentives. However, these new tax incentives will not be in place until April 2006, leaving the industry in a tax limbo in the meantime.

The main features of the new tax relief scheme are that:

• The money will be paid direct to film-makers, not through third parties, so it will be less open to abuse;
• The relief will cover 20% of production costs compared to the 15% covered by the old Section 48 relief;
• Films with budgets of up to £20 million will be able to benefit, compared to a limit of £15 million under Section 48;
• For the first time, the relief will include an added incentive for films to be profitable;
• The relief applies to all production expenditure, not just that spent in the UK; and
• The maximum relief which can be claimed on a qualifying film will rise typically to £4 million compared to £2.25 million under Section 48.

Mr Kuhn also offered additional solutions to the funding problem, including a new levy on those who "benefit directly and indirectly from the UK film industry", particularly cinema owners.

Pointing to the level of current interest in acquiring cinema chains among venture capital companies, he said that such a levy would "offend no one and benefit many" and generate up to £80 million a year.

As a longer-term solution, Kuhn favoured the creation of a central fund allowing British films to be marketed to the public more extensively.

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