Uncertainty Over UK Film Tax Regime Hits Pinewood Profits

by Jason Gorringe, Tax-News.com, London

01 September 2005

It emerged this week that uncertainty in the United Kingdom over the tax regime for film production has led to a reduction in interest in the UK as a location, impacting on the profits of Pinewood Shepperton plc, one of the country's leading studios.

Unveiling its results for the six months to June 30, Pinewood revealed that operating profits before exceptional administrative expenses, finance costs and taxation had sunk to £1.9 million, compared to £6.6 million for the same period last year.

Speaking with regard to the disappointing figures, Michael Grade, Chairman, announced that:

"As previously indicated, trading conditions for Film Stage Services during the first half of 2005 were challenging as a direct result of outside factors. On 29 July 2005 the Government finally issued its consultation document on the future of UK film fiscal policy."

"We welcome the Government's commitment to continuing fiscal incentives for the UK film sector, and the fact that the issue is now on its way to a positive resolution. Inevitably, some uncertainty will remain while the details are finalised, expected by the Spring of 2006."

"The Board believes the disappointing results for the first half do not indicate any fundamental shift in the film production business as a whole. Our strategy therefore remains unchanged and the Board remains confident in the long term prospects for the group."

Following the UK Treasury's announcement earlier this year of a review of film tax reliefs in Budget 2005, a consultation document was published, setting out proposals for new tax incentives for the production of films which make a cultural contribution to Britain.

The new proposals are being viewed as a lifeline for the film industry in Britain, which has faced mounting uncertainty after the Treasury decided to scrap the system of tax incentives known as Section 48 because it felt that they were too readily abused by film financiers.

The consultation, known as 'Reform of Film Tax Incentives: Promoting the sustainable production of culturally British films', reflects the Government’s view that more can be done to encourage effective and sustained investment while providing better value for money for the British taxpayer and the film-going public.

The proposed new relief aims to achieve the following:

• Direct and easier access to support for film producers ensuring better value for money for taxpayers;
• Better targeting of support towards culturally British films, including more generous levels of benefit for those British films in need of greater support;
• Greater flexibility for film-makers in light of the increasingly global nature of film-making - balanced with incentives that support the sustainability of UK infrastructure and human and technical resources, to ensure the ongoing production of culturally British films; and
• Ensuring that the cinematic successes of today can help support the successes of tomorrow by providing producers the most generous level of benefit where they are committed to medium-term investment in UK film productions.

The closing date for responding to the consultation is October 21, 2005.

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