Tagged: Accounting, Budgeting

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. Following the UK Government's 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.

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.

• UK/ Australia film co-production agreement

• UK/ Canada film co-production agreement

• UK/ France film co-production agreement

• UK/ India film co-production agreement

• UK/ Israel film co-production agreement

• UK/ Jamaica film co-production agreement

• UK/ New Zealand film co-production agreement

• UK/ South Africa film co-production agreement

• 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

Saffery Champness
John Graydon, Partner
Tel: +44 (0)20 7841 4281
Email: john.graydon@saffery.com

Shipleys LLP
Steve Joberns, Principal
Tel: +44 (0)20 7312 6558
Email: jobernss@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