In his first Budget as Chancellor, Jeremy Hunt has set out several measures to demonstrate the government’s commitment to the UK’s arts and heritage institutions. Particularly highlighted was the UK’s burgeoning film and TV industry which is now the largest in Europe and the Chancellor announced a number of tax reliefs to enable British made films and TV programmes to claim reliefs on core costs.
Film, TV, and Video games
Companies in the film industry can often claim additional tax relief which is sometimes repayable as a tax credit. The relief is claimable on what are identified as ‘core costs’ in relating to a specific film. At least 10% of the core costs need to be incurred in the UK. To qualify, the film must be certified as British. The film must pass a cultural test or qualify through an internationally agreed co-production treaty.
The company can claim an additional deduction to reduce its profits or to increase a loss. This will reduce the amount of any Corporation Tax it needs to pay.
The additional deduction will be the lower of either:
- 80% of total core costs
- the amount of UK core costs
If it makes a loss, some or all this loss can be surrendered for a payable tax credit at a rate of 25%.
A similar relief applies to the production of high-end TV programs, children TV programs, TV animation and video games. The rules are similar, but not identical to the film tax relief.
The film, TV, and video games tax reliefs will be reformed, becoming expenditure credits instead of additional deductions from 1 April 2024. The new Audio-Visual Expenditure Credit will replace the current film, high-end TV, animation, and children’s TV tax reliefs. Film and high-end TV will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%. The new Video Games Expenditure Credit will have a credit rate of 34%.
Share for share exchange
With appropriate tax clearances, it is usually possible to sell a company to another company in exchange for shares without Capital Gains Tax (CGT). If the acquiring company is not a UK incorporated company, then this means the vendor ends up holding shares in a foreign company. This can provide tax benefits to some individuals particularly those that are not UK domiciled.
The Budget proposes to remove these benefits. The new legislation deems securities in a non-UK company acquired in exchange for securities in a UK company to be in the UK for the purpose of CGT. Individuals will pay tax on gains or dividend and distribution income received in respect of those securities deemed to be located in the UK in the same way as they would if the securities were in a UK company. If securities deemed to be located in the UK by this measure are later exchanged for securities in another non-UK company, the newly acquired securities are also deemed to be located in the UK, regardless of the number of subsequent exchanges of such securities that take place.
This measure will only apply where the UK company is a close company (broadly a company controlled by either its directors or five or fewer shareholders) and the non-UK company would be a close company if it were a UK company. It will not generally apply if the shareholder has 5% or less of the equity.
It applies to share exchanges or schemes of reconstruction carried out on or after 17 November 2022. It is therefore already in force.
Introduction of the new multinational top-up tax and domestic top up tax
This will only apply to groups with annual global revenues exceeding €750m that have business activities in the UK. It will have effect in respect of in-scope groups’ accounting periods beginning on or after 31 December 2023.
The multinational top-up tax will introduce a new tax on UK parent members within a multinational enterprise group.
A tax will be charged where a UK parent member has an interest in entities located in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed at below the minimum rate of 15%.
The charge is a top-up tax; the amount brought into charge is that required to achieve a 15% minimum rate. No additional tax will arise in respect of jurisdictions where the group’s profits are taxed at 15% or more.
The domestic top-up tax will introduce a new tax on UK members within a domestic or multinational enterprise group. A top-up tax will be charged when the group’s profits arising in the UK are taxed at below the minimum rate of 15%.
Additional transfer pricing documentation
This measure will primarily affect businesses operating in the UK, which are part of a large multinational enterprise group that has global revenues of €750 million or more. It will have effect for accounting periods commencing on or after 1 April 2023 for corporation tax purposes. For Income tax purposes it will apply to the 24/25 tax year and subsequent years.
It requires large multinational businesses operating in the UK to maintain a master file and a local file in a prescribed and standardised format, as set out in the Organisation for Economic Cooperation and Development’s transfer pricing guidelines. It also introduces a requirement to complete a summary audit trail, which is a short questionnaire detailing the main actions undertaken in preparing the local file.