23/03/2006

In yesterday’s Budget 2006 announcement, the Chancellor of Exchequer Gordon Brown brought bad and good news to the UK film industry, which from April 1 will see the introduction of a new film tax relief system replacing the existing Section 42 and Section 48.

The bad news came through the definition of qualifying UK expenditure as “that directly incurred in relation to pre-preproduction, principal photography and post-production activities which take place within the UK”. In other words, UK productions or UK co-productions having to shoot abroad will no longer be able to benefit from UK tax incentives and raise money for financing.

This new rule was introduced by the government to make the UK comply with EU regulations. However, as stressed by producer Andrea Calderwood (The Claim), vice chair of the UK film producers association PACT, “the effect of EU regulations in this case may seriously endanger the prospects for British and European productions, while giving maximum tax advantages to US studio productions” She added: “We are sure this is not the effect that either the UK government or the EU intend and we hope to work constructively and urgently to address this anomaly”.

The good news is that films will now be required to spend at least 25% of their budgets in the UK to qualify, not 40% as proposed in last year’s consultation paper. “The lowering of the minimum UK expenditure threshold from the proposed 40% to 25% is great news as more films will be in a position to qualify for tax relief”, commented John Woodward Chief Executive Officer of the UK Film Council.

Other confirmed new, positive tax measures include a 20% tax credit on low budget films with budgets up to £20m (€29m) and a 16% tax credit on films with budgets of £20m and above. However, to qualify, a British film will still have to pass a new “cultural test” and each film will be treated separately as opposed to as a slate of projects.