In the last week, I have run past two film sets in my neighbourhood. You might think this is normal in London, but I was quite surprised as the locations were (i) an acid grassland and (ii) a building that had sat empty for the last few months having previously been a moped repair shop. I hope the cast and crew did not mind me and my dog running through the back of their shot, but I expect they are too delighted to be back on set to care.
After months of uncertainty and inactivity, it appears the film and TV industry is slowly restarting. And while it is only the smaller productions to begin with, who can better work with the social distancing limitations, it is a great sign that things are slowly getting back to normal, and hopefully the bigger productions will be back up-and-running soon.
In sharp contrast to the support of the arts through coronavirus, the UK government has for a long time offered various tax incentives to encourage filming in the UK. Subject to meeting various conditions, any film production company, large or small, can claim Film Tax Relief. The relief will either give a reduction on a corporation tax bill or, if the company is yet to realise a taxable profit, can be realised as a tax credit payable to the company.
In order to qualify for Film Tax Relief, the main criterion is for the film to be “British”. A production company will be required to pass a cultural test, which is overseen by the British Film Institute, in order to obtain a certificate confirming the status. Despite this, this has not prevented Hollywood studios from making huge blockbusters with seemingly no British culture in them and still claiming this relief. For example, various Avengers movies have claimed film tax relief largely because they were filmed in UK film studios, amongst other factors. A list of the factors considered can be found here – by simply being in English language you have 1/3rd of the points required to qualify.
One of the other key qualifications for film tax relief is that the film is intended to be released theatrically. Note the word ‘intended’. If for one reason or another the film never makes it to a cinema screen, this does not prevent the production company from claiming the relief. Furthermore, the release need not be nationwide, so long as one cinema sells tickets to see the film, this will ensure qualification.
The calculation for Film Tax Relief is based on two main factors:
- UK expenditure vs non-UK expenditure
- Core expenditure vs non-core expenditure
The UK expenditure is fairly self-explanatory – if the goods or services were provided in the UK, they are UK expenditure. Core expenditure is typically anything in the pre-production, principal photography and post-production. This excludes development and distribution costs. If costs do not relate directly to the production, for example the bank interest or accountants’ fees for preparing the year end accounts, these will be excluded too.
Once these amounts are established, the calculation for the Film Tax Relief is the lower of:
- 80% of the total core expenditure
- the amount of UK core expenditure
This can be taken as a further deduction from the company’s profits (or an extension of the loss) or be surrendered to give a 25% credit of the relevant amount.
If the film is a simple, UK-only production, this boils down to the company receiving a tax credit worth 20% of the costs of production (excluding development and distribution).
Film Tax Relief is given through the corporation tax return for a company. Therefore, the credits are only recoverable once a return has been filed. The default position for UK companies is an annual filing, but a period can be reduced to as little as six months in order to accelerate this process. It should also be stressed that the credit be only be receivable after costs have been incurred, so while it might be budgeted for, there might need to be some financing to bridge the gap between incurring the costs and receiving the credit.
As with most tax claims, it is worth considering if the cost of making a claim is worthwhile. A very small budget film is unlikely to receive a credit bigger than the fees incurred in making the claim. Also, note the time spent in attending to the compliance (such as making the BFI application) might be better spent elsewhere in the production if resources are limited.
Finally, there are many more creative tax credits available to other creative industries, these being:
- Animation Tax Relief
- High-end Television Tax Relief
- Video Games Tax Relief
- Children’s Television Tax Relief
- Theatre Tax Relief
- Orchestra Tax Relief
- Museums and Galleries Exhibition Tax Relief
Each comes with their own restrictions and qualifying criteria. For example, the High-end Television Tax Relief requires the production to be longer than 30 minutes and for the budget to be on average £1,000,000 per hour of slot length (pro-rata). With so much money in the TV boxset, the government were eager to extend the credits available, and productions like Killing Eve and The Crown have taken advantage.
If you want to discuss any of the above, or any other matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com, or simply stop me and my dog when we next run through set.
