Film Tax Relief

If you’re producing a film, the last thing you want is to feel unable to create high-quality work because you can’t meet the costs. Yet with the entertainment industry continuing to grow, many producers feel that a lack of resources gets in the way of them standing out from the competition.

However, you may not need to spend as much as you think. There’s a tax incentive called film tax relief from which you can receive help in shouldering the financial burdens of producing a film in the UK. It’s a generous offering that can help you bring your on-screen project to fruition.

If you decide to turn to these incentives, you must understand exactly what they involve. This guide aims to give you answers to all the questions you might have regarding this topic. What is film tax relief? How does it work? And how do you claim it? Find out all this and more below.

What is UK film tax relief?

The UK Government wants to support the British film industry. To that end, they have created a scheme called the British film tax relief, which helps producers create films in the UK. This incentive has been attracting and supporting productions of all sizes since 2007, including many major blockbuster films.

How does film tax relief work?

Your film production company could be eligible for the film tax relief scheme if it’s subject to UK corporation tax. Additionally, your project needs to satisfy several criteria. So, what are they?

British film status

First of all, the film needs to be classed as British. This means either that it passes a British Film Institute (BFI) Cultural Test or is an official co-production.

·       BFI Cultural test: This is a points-based test in which your project needs to score 18 out of 35 points to pass. Points are scored across four sections: cultural content, cultural contribution, cultural hubs and cultural practitioners.

·       Co-production: The Government has 12 co-production agreements that aim to encourage cross-cultural collaboration between filmmakers from the UK and other countries. It is also a part of the Council of Europe Convention on Cinematographic Co-production. Your film needs to qualify through one of these internationally agreed treaties to be classed as an official co-production.

Financial qualifications

Your project also needs to pass a financial standard.

Core expenditure means the costs you spend on pre-production, principal photography and post-production. Costs for peripheral activities such as marketing, distribution, financing, initial concept work or ordinary production operation costs are not included within the scope of core expenditure.

At least 10% of your film’s core costs must be “UK expenditure”, which HMRC defines as money your production company spends on goods or services that are used or consumed in the UK during filming activities. 

Responsibilities

To be eligible to receive film tax credits, your company needs to be responsible for the following phases and activities related to the project:

·       Pre-production

·       Principal photography

·       Post-production

·       Delivery of the completed film

·       Planning and decision making

·       Negotiating, contracting and paying for rights, goods and services

Finally, you must intend your film for theatrical release.

How do I claim film tax relief?

There are two stages of claiming film tax relief. First, you’ll need to provide evidence of British film status when claiming and therefore need to have secured this beforehand. Luckily, you can apply for it before you even begin production. With this secured, you can then claim film tax relief.

How to apply for British film status

You can apply for the BFI Cultural Test during or even before production. Then, once your film is complete and ready to be viewed by an audience, you must submit a final application using a new form to get the certification you need to claim film tax relief.

Additionally, you need to attach supporting documents to assist your application process. These include but are not limited to:

·       The shooting script

·       A synopsis of the screenplay

·       The shooting schedule

·       An interim production budget or final cost report

·       A copy of the film upon completion

Alternatively, you can apply for your project to qualify as a co-production. Critically, you need to apply for this at least four weeks before your film’s principal photography starts and send the BFI a printed statutory copy of your application form to be eligible for certification.

How to claim film tax relief

After qualifying for British film status, you can then use either your cultural test or co-production certification when you claim film tax relief on your Company Tax Return. You can make or modify your claim for film tax relief up to one year after your film production company’s filing date.

During this process, you’ll need to calculate an additional deduction that will reduce your profits or increase a loss, thereby reducing the amount of Corporation Tax you need to pay. This additional deduction is the lower of either 80% of your total core expenditure or your total UK qualifying expenditure.

You will also need to provide evidence to support your claim using an official form, including important details such as:

·       The name of the production

·       The tax calculations with the amount of deductions and credit

·       Your production’s total core expenditure and UK qualifying expenditure

·       A breakdown of core and non-core expenditure between UK and non-UK countries

How much film tax relief can I claim?

The amount of film tax relief you can claim is calculated based on the amount of your film production company’s core expenditure that is also UK expenditure.

You can claim whichever figure is lower between your total UK core expenditure or 80% of your overall core expenditure. In Government jargon, this is called enhanceable or enhanced expenditure. It represents what you can claim in film tax relief, since the current rate of enhancement is set at 100%.

If all your core expenditure is in the UK, you would have to claim the lower figure of 80% of your total core costs in film tax relief, for example. What this means in real terms is that your enhanceable expenditure is capped at 80% of your total core costs.

You use this enhanced expenditure to claim an additional deduction when filing your Corporation Tax Return. This either:

–      Reduces your profit and thereby the amount of Corporation Tax that you’re due to pay, which currently has a rate of 19%. In this case, the value of your film tax relief is 19% of your enhanceable expenditure, as a reduction in corporation tax liability.

–      Creates or increases losses, which you can surrender to HMRC in exchange for a tax credit worth 25% of whichever is smaller between the loss itself or your enhanced expenditure. 

Hopefully, after reading this guide, you have a clearer understanding of what film tax incentives are and if they’re something you’re eligible for. Browse our Financial Glossary for more useful explainers and guides. If you have any questions relating to commercial finance, please don’t hesitate to get in touch with our friendly team of experts.