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UK Government Releases Film Tax Guidance

by Jason Gorringe, Tax-News.com, London

09 May 2007


The UK's HM Revenue and Customs has released guidance on new rules for the taxation of film production, and in particular a new enhanced tax relief for the production of British cinema films, which was introduced by Finance Act 2006.

HMRC 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 which they replace, 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 will receive an additional deduction of 80% of qualifying UK expenditure and will be 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.

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 http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report5.asp

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