UK Film Industry Recovering After Tax Changes

by Robert Lee, Tax-News.com, London

02 July 2004

When the UK government changed tax rules in February to prevent the manipulation of trading losses for tax purposes, many predicted it would have a devastating impact on the British film industry.

However, five months later, the UK Film Council has reported that most films that were in production at the time of the change have since managed to reorganize their finances.

"There was a lot of screaming about it because the whole industry was concerned. But actually, five months down the line, I think we're going to be okay," a Film Council spokesman told the BBC, adding that the number of films made this year, and those employed in their production, would likely be roughly equal to last year.

The old tax rules helped to attract significant amounts of funding for productions to be shot in the UK. However, when the Inland Revenue pulled the plug without warning in February, about 40 film projects already underway faced the threat of closure.

Justifying the government’s move, Paymaster General Dawn explained at the time that the measure was not aimed specifically at the film industry and was intended to apply across the board.

"These schemes exploit tax reliefs that are intended for people who risk their own money in running genuine businesses, but the schemes manipulate tax relief to create claims for losses in excess of the capital at risk,” she declared.

One high profile victim of the change was ‘The Libertine’ starring Johnny Depp which was saved by additional funding and the transfer of production to the more tax-friendly Isle of Man.

Other notable projects such as ‘Tulip Fever’ featuring British star Jude Law, are still in the process of restructuring their finances and schedules have been set back by about six months.

However, the Film Council representative added that the long term impact of the government's decision was likely to be minimal.

"A few of (the films) were large and it hurt, and it didn't really do them any good, but the industry as a whole continues to work very well - and the majority of productions are under legitimate schemes anyway," he told the BBC.

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