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UK Film Tax Incentives Working Well, Report Concludes

by Robert Lee,, London

26 July 2007

The UK government’s new film tax relief is working well, keeping the UK competitive and supporting the growth of a thriving film sector, according to a new report.

As a result of the tax incentives, the UK is expected to attract around 11% of global film production over the period to 2010 with inward investment rising to about GBP800 million by then, the report by Oxford Economics, published on Monday, has predicted.

In 2006, the UK film industry contributed GBP4.3 billion to the British economy including revenues made via employment, production and servicing through to profits from worldwide exploitation, exports, merchandising and UK tourism, the report revealed.

New tax relief provisions for the production of British cinema films, which replaced the old 'Section 48' incentives, were introduced by Finance Act 2006. In guidance released in May 2007, HM Revenue and Customs said that the film tax regime builds on new rules for calculating the profits and losses of film production companies for tax purposes. These new rules, like the ones that they replaced, apply to all film production companies. The relief is aimed directly at film production companies and is not available to those whose only involvement in film making is confined to providing or arranging finance.

In order to qualify, a film must meet three conditions. It must: be made to be shown commercially in cinemas; be certified as British either because it is an official co-production or because it satisfies a new cultural test administered by the Department for Culture Media and Sport; and incur at least 25% of its total production expenditure on film making activities in the UK.

British films costing GBP20 million (US$40 million) or less are eligible for an additional tax deduction of 100% of qualifying UK expenditure and to surrender losses in exchange for a cash payment of 25%, amounting to a benefit worth at least 20% of qualifying production costs. Other British films receive an additional deduction of 80% of qualifying UK expenditure and are able to surrender losses in exchange for a cash payment of 20%, amounting to a benefit worth typically 16% of qualifying production costs.

The new rules apply to films which commenced principal photography on or after 1 January 2007 and to films starting principal photography before 1 January 2007, but uncompleted then.

Commenting on the findings, John Woodward, Chief Executive Officer of the UK Film Council, stated: “This new report shows that the UK film industry is a major contributor to the UK economy making films that UK and international audiences want to see and generating financial and cultural benefits. Thanks to our world class film facilities and phenomenal skills and talent, backed by Government and industry investment, the British film industry is strong and primed for further growth."

Ivan Dunleavy, Chief Executive of Pinewood Shepperton plc noted: "The UK is increasingly seen as a creative hub and one of the few worldwide centres of excellence. This position will be strengthened over the coming years given its commitment to training, innovation, capital investment and infrastructure. The Oxford Economics report demonstrates clear and irrefutable evidence of the tangible benefits that UK film and the creative industries as a whole bring to the economy."

A comprehensive report in our Intelligence Report series examining tax-sheltering arrangements for investors, including Venture Capital, Forest Finance, Film Finance, is available in the Lowtax Library at and a description of the report can be seen at

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