Consultation on proposed new tax incentives for British film production

Following the Chancellor’s announcement of a review of film tax reliefs at Budget 2005, the Government today published a consultation document setting out proposals for new tax incentives for the production of culturally British films.

The consultation, Reform of Film Tax Incentives: Promoting the sustainable production of culturally British films, reflects the Government’s view that more can be done to encourage effective and sustained investment while providing better value for money for the British taxpayer and the film-going public. The proposed new reliefs are designed to meet their core aim of promoting the sustainable production of culturally British films more effectively while creating an attractive environment for international studios to invest in UK talent and production. They also reflect the need to comply with EU requirements on state aid in relation to the promotion of culture.

The proposed new relief aims to achieve the following:

direct and easier access to support for film producers ensuring better value for money for taxpayers;
better targeting of support towards culturally British films, including more generous levels of benefit for those British films in need of greater support;
greater flexibility for film-makers in light of the increasingly global nature of film-making - balanced with incentives that support the sustainability of UK infrastructure and human and technical resources, to ensure the ongoing production of culturally British films; and
ensuring that the cinematic successes of today can help support the successes of tomorrow by providing producers the most generous level of benefit where they are committed to medium-term investment in UK film production.

Paymaster General Dawn Primarolo said:

“This consultation signals the Government’s continuing recognition of the cultural and economic benefits that film production brings to the UK. It provides a real opportunity to maximise the role that tax incentives can play towards Government objectives for film by ensuring greater effectiveness, value for money and a better contribution to the sustainable production of culturally British films in the UK.”

In parallel, the Department for Culture, Media and Sport today launched a consultation on a proposed objective cultural test for British film.

The test aims to better identify culturally British films that might be considered eligible for the new tax incentives. It will offer filmmakers more flexibility by ensuring that a range of measures – personnel, cultural content and facilities – are given more consideration in assessing whether a film qualifies as British. Under the current system, these issues are considered only indirectly as part of the expenditure tests.

Films need to qualify as British in order to be eligible for tax relief.

Film minister James Purnell said:

“The Government is committed to a successful, stable and sustainable film industry. The proposals published today aim to deliver this.

“In particular the proposed cultural test would offer greater flexibility to film-makers 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.

“I want the industry to give us its views on whether the proposal will deliver for film-makers and their audiences.”

The consultation seeks comments on the proposed new relief and the draft legislation.

The closing date for responses to both consultations is 21 October 2005.

Notes for editors

1. There are currently two special tax incentives available for the production of films in the UK. The first was introduced by Section 42 of the Finance (No 2) Act 1992 and the second, available for qualifying films with total expenditure of £15 million or less, by Section 48 of the Finance (No 2) Act 1997. Section 42 (‘large budget tax relief’) is not time limited, but Section 48 (‘low budget tax relief’) is due to expire in 2006.

2. In the 2004 Budget, the Chancellor announced that the low budget tax relief would be replaced when it expired with a new relief aimed at support for filmmakers. Further details were provided in an HM Revenue and Customs Technical Note on 21 September 2004. At the Pre-Budget Report in December 2004, the Chancellor announced a review of large budget tax relief which was carried out in January 2005.

3. The proposed new relief is based on the tax credit model that was launched for discussion with the industry in September 2004 as a proposal for a new low budget film tax credit. Following industry comments last year on the tax credit model and earlier this year on s42, the proposals launched for consultation today are designed to introduce a single coherent regime to encourage the sustainable production of culturally British films. The key new features of the proposed relief are that they:

are provided directly to film-makers themselves;
apply to films that are certified as culturally British films;
are 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 £20 million or less; and
allow a payable credit at a level of 25% and provide an enhanced deduction of 25% for other qualifying films.

The intention is that the new relief be introduced with effect from 1 April 2006 following formal consultation on draft legislation. This timetable is subject to obtaining clearance from the European Commission that the relief is consistent with the rules for providing State Aid for the promotion of culture. For films where production straddles this date, there will be clear transitional rules, with no gap in relief. It is intended that films that have started production by 1 April 2006 would continue to be able to access the current reliefs provided the film is completed before 1 January 2007 and, where relief is available for acquisition expenditure, provided the film is acquired before 1 October 2007.

4. Films eligible for the new relief will need to be certified as culturally British under a new test. The Department for Culture, Media and Sport is launching a parallel consultation on the new test today. Press enquiries to DCMS Press Office on 020 7211 6269/6267.

5. Press enquiries on the HM Treasury consultation, Reform of Film Tax Incentives: Promoting the sustainable production of culturally British films should be addressed to Rachel Gibbons in HM Treasury press office on 020 7270 5185.

6. The DCMS cultural test consultation document can be accessed at http://www.culture.gov.uk/global/consultations/

The Government invites comments on the consultation documents. The consultations will be primarily in electronic format.

Emailed responses to the HM Treasury consultation, which can be accessed at http://www.hm-treasury.gov.uk/filmtax should be sent to:
films-team@hm-treasury.x.gsi.gov.uk

Written comments can be submitted to:

David Hamp-Adams
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
Fax: 0207 270 4861

Emailed responses to the DCMS consultation should be sent to: filmculturaltest@culture.gsi.gov.uk

Written comments can be submitted to:

Paul Candler
Head of Film Branch
Department for Culture, Media and Sport
2-4 Cockspur Street
London
SW1Y 5DH
Fax: 020 7 211 6417