UK film tax relief
Summary
As the UK government announces the extension of the film tax relief, and at a time when tax reliefs are becoming an essential element of film financing, Sargent-Disc has produced a guide to qualifying a film as British and the UK film tax relief system.
The UK's film tax relief system was introduced in 2007 and is widely acknowledged to be an essential part of financing for domestic and international films shooting in the UK. As Prime Minister David Cameron has announced the extension of the tax relief until the end of December 2015, we explain the UK tax credit: the requirements for qualification, and its value.
The requirements
The following rules apply in order to gain the UK tax relief:
- The film needs to be British qualifying. It must either pass the cultural test or qualify as an official co-production;
- The film must be intended for theatrical release;
- The film, whether a cultural test or co-production film, must reach a minimum UK qualifying production spend requirement of 25%;
- The Film Production Company (FPC) (2) responsible for the film needs to be within the UK corporation tax net.
British qualification
In order for a FPC to claim tax relief, the film needs to qualify as British by meeting the requirements of one of the following:
- The Cultural Test
- One of the UK's official bilateral co-production treaties
- The European Convention on Cinematographic Co-production
Cultural Test
The Cultural Test is made up of four sections:
A) Cultural content
B) Cultural contribution
C) Cultural hubs
D) Cultural practitioners
Each section has a number of points allocated to it. A film needs
to score 16 out of a possible 31 points, subject to a 'golden
points rule':
A film with 15 points from C, D and A4, and less than two points
from A1 and less than two points from A2, must obtain the points
from section A3 to pass.
Section |
Cultural Test |
Points |
A |
Cultural Content |
|
| A1 |
Film Set in the UK |
4 |
| A2 |
Lead characters British citizens or residents |
4 |
| A3 |
Film based on British subject matter or underlying material |
4 |
| A4 |
Original dialogue recorded mainly in English language |
4 |
B |
Cultural Contribution |
|
| B |
Film represents/reflects a diverse British culture, British heritage or British creativity |
4 |
C |
Cultural Hubs |
|
|
C1 |
Studio and/or location shooting/ Visual Effects/ Special Effects |
2 |
|
C2 |
Music Recording/Audio Post Production/Picture Post Production |
1 |
D |
Cultural Practitioners |
|
|
D1 |
Director |
1 |
|
D2 |
Scriptwriter |
1 |
|
D3 |
Producer |
1 |
|
D4 |
Composer |
1 |
|
D5 |
Lead Actors |
1 |
|
D6 |
Majority of Cast |
1 |
|
D7 |
Key Staff (lead cinematographer, lead production designer, lead costume designer, lead editor, lead sound engineer, lead visual effects supervisor, lead hair and makeup supervisor) |
1 |
|
D8 |
Majority of Crew |
1 |
All sections |
Pass Mark 16/31 |
Total Points 31 |
Co-production
Films made as official co-productions either under a bi-lateral treaty or the European Convention on Cinematographic co-production are not required to pass the Cultural Test, but instead must follow the requirements within the treaty.
The UK currently has eight active bi-lateral treaties with:
Australia; Canada; France; India; Israel; Jamaica; New Zealand; and
South Africa and is also one of many countries signed up to the
European Convention on Cinematographic co-production.
Value of the relief
The tax relief is paid to FPSs and is calculated as a percentage
of qualifying UK expenditure.
- For films with a total core expenditure of £20 million or less, the film production company can claim a payable cash rebate of up to 25% of qualifying UK film production expenditure.
- For films with a core expenditure of more than £20 million, the film production company can claim a payable cash rebate of up to 20% of qualifying UK film production expenditure.
Qualifying UK production expenditure is the lower of either:
- 80% of total core expenditure; or
- the actual UK core expenditure incurred.
HM Revenue & Customs' (HMRC) definition of UK spend includes the concept of where a good or service is "used or consumed" (3). If they are used or consumed in the UK, the expenditure is treated as UK expenditure . If they are used or consumed outside the UK, they do not count as UK expenditure. This spend can take place during pre-production, principal photography and co-production, and is irrespective of the nationality of the persons carrying out the activity.
How can Sargent-Disc help?
Sargent-Disc can provide a range of services to a production, from pre-production through to post. For information about our services, please contact us at Sargent-Disc. Let us help you with your production and employment enquiries about working in the UK, and take the drama out of your production. Our services include:
Budgeting
Movie Magic Budgeting and Scheduling
software
Production software training
Production and post production
accounting
Payroll services
Production
card
Movie Magic Budgeting
Industry standard software is available to help when putting together a budget. Movie Magic Budgeting 7 , for example, has been designed to assist with complex budgeting scenarios. It allows for elements to be pulled through from Movie Magic Scheduling, helping to save time and ensure accuracy. It also allows for multiple incentives, credits, and rebates to be applied, compared, and analysed.
Advisors
For advice, guidance and facts about international production incentives, and to compare them online, visit the incentive solutions section of the Entertainment Partners website or contact them directly here:
Entertainment
Partners
Incentives Solutions Group
Joseph Chianese, Senior Vice President
Tel: 818.955.6242
Email: jchianese@entertainmentpartners.com
There are also a number of specialist accountancy and audit
firms in the UK that advise clients when structuring British
qualifying films. Here are just a few:
Grant Thornton UK LLP
Christine Corner, Partner
Tel: +44 (0)20 7728 3171
Email: christine.corner@uk.gt.com
RSM Tenon
John Graydon, Director of Business Services Film Unit
Tel: +44 (0)20 7535 1400
Email: john.graydon@rsmtenon.com
Shipleys LLP
Steve Joberns, Principal
Tel: +44 (0)20 7312 6558
Email: stephen.joberns@shipleys.com
Further Information
The British Films
Certification Department is based at the BFI and works with
producers on qualifying films as British
The British Film
Commission is able to assist international productions when
planning to shoot in the UK, including advising on the tax
relief.
HMRC's Film Tax Unit can advise on
the tax rules for film production in the UK
References
(1) The European Commission's public consultation 'Assessing state aid for films and other audio visual works'
(2) HMRC definition of Film Production Companies
(3) HMRC definition of Used or Consumed
