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Film tax relief

Very approximately, if a qualifying film costs £Y million, then with Film Tax Relief, the production company can claim up to £2Y million against corporation tax, if all expenses qualify.

Qualifying expenses for film tax relief

The new film tax relief benefits film producers and co-producers. This relief promotes a sustainable British film industry. After all, the British film industry uses highly regarded innovative technology, and British films attract worldwide audiences.

How the relief operates

Film tax relief enables:

  • Enhanced tax deductions for profitable production companies,
    • Calculated using the production company’s qualifying expenditure; and
  • Payable tax credit in other circumstances,
    • Again calculated using the production company’s qualifying expenditure.

There are requirements to meet, like any other corporate tax relief. Some requirements are:

“British” films get film tax relief

The film must be a British film. The British Film Institute has the final say, then issues a certificate for qualifying films.

A company paying UK corporation tax must produce the film. So partnerships or individuals can’t claim this relief. Only one company can claim Film Tax Relief for the film. It is the company that:

  • Was actively involved in production planning and decision making;
  • For co-productions:
    • Was the most directly involved in production planning and decision making.

Co-productions

Co-productions are common in film production. A special purpose film-production vehicle is probably entitled to Film Tax Relief, if it satisfies the other criteria. We identify the appropriate corporate structure.

Core expenditure

Besides the usual costs charged to the P&L, Film Tax Relief allows you to charge the P&L “core expenditure” costs again. “Core expenditure” is roughly defined as expenditure:

  1. Incurred during pre-production, principal photography or post-production;
  2. But not development, distribution or finance costs, e.g. servicing finance arrangements.

Licence payments

For example, licence payments to use a script or book are not “core expenditure”. However, if you buy the rights to the script or book, i.e. there is an “assignment of rights”, then this payment probably counts as core expenditure.

This is because buying the rights is a necessary expenditure, incurred during pre-production. However, HMRC classes licence fees as servicing finance arrangements, because licences don’t grant the same exclusive rights as a purchase.

Location of expenditure

Essentially, you must spend the money in Britain. The costs of filming in overseas locations probably won’t gain Film Tax Relief. Neither will employees who are paid overseas.

The supply of services test

The location must pass the supply of services test. The test determines where the service is performed, not from where it was paid. For instance:

  • Doesn’t qualify: a British company who pays a British actor in British pounds, for acting in Africa.
  • Does qualify: payments to an overseas star who flies to Britain for filming.

We check the service agreement and employment documentation correctly identifies the place of supply.

Industry approval for film tax relief

The film must be intended for theatrical release, i.e. the public will pay to see it at a cinema or viewing gallery. The producers should also intend that the majority of their revenues derive from the theatrical release, NOT:

  • Merchandising or character rights;
  • Spin offs;
  • Sequels.

We ensure production contracts are appropriate.

John Deane is a partner in the commercial team at Gannons. The majority of John’s clients are in the creative sectors, notably TV, theatre, film, and music. 

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