18/08/2005

The UK government has announced its intention to introduce a «single coherent tax regime to encourage the sustainable production of culturally British films». The proposed new tax incentives will in effect replace the ‘large budget tax relief’ Section 42 and the ‘small budget tax relief’ Section 48 due to expire in 2006.

The key new features of the proposed new relief are that it:
-is provided directly to filmmakers themselves,
-applies to films that are certified as culturally British films,
-is provided on qualifying UK production expenditure where a minimum UK spend threshold of up to 40% has been met, up to a maximum of 80% of qualifying production expenditure,
-allow a payable tax credit at a level of 30% and provide an enhanced deduction of 50% for films that cost £20m or less, and
-allow a payable credit at a level of 25% and provide an enhanced deduction of 25% for other qualifying films.

The new film tax incentives detailed in the consultation paper ‘Reform of Film Tax Incentives: Promoting the sustainable production of culturally British films’ will be introduced on 1st April 2006, but, according to the Treasury, timetable is subject to «obtaining clearance from the EU that the relief is consistent with the rules for providing State Aid for the promotion of culture».

In parallel, the Department of Culture, Media and Sport (DCMS) has launched another consultation paper with a proposed ‘cultural test’ that filmmakers will have to pass to qualify for the tax relieves. In other words whereas under the current system, the British elements in a film are considered only indirectly as part of the expenditure tests, the UK Treasury will in the future give much more consideration to the true ‘Britishness’ of film projects. The underlying goal being to try to prevent the abuse of the current UK film incentives by opportunistic financiers who in the past have made UK minority co-productions with little or no UK cultural content. A film project will therefore be eligible for tax relieves and certified as British if it amasses 15 cultural points out of a maximum of 30.
Commenting on the ‘cultural test’, the UK Film minister James Purnell said: «It will offer greater flexibility to filmmakers by allowing them a number of routes into being classified as a British film. It is not about dictating the content or style of the films they make».
The UK film industry has been invited to comment on the government’s two consultation papers with a deadline set for 21st October 2005.