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Film and television tax reliefs for production companies

Mercer & Hole Audit and Business Advisory Partner, Andy Turner has considerable experience of the media sector and has advised many film and television production clients over the past 29 years. Working Title Films, Universal, ITV are amongst those who have benefitted from Andy’s commercial insight, technical expertise and dedication to excellent client service. Andy is also a BAFTA member – he is no ordinary accountant!

Here, Andy looks at some of the tax reliefs which can benefit British film and television production companies, which can help them to continue to produce high quality and award-winning work now and in the future. 

What challenges does the industry face?

British made films and television have made a comeback, winning awards and becoming critically acclaimed across the world. Financing continues to be hard work for most and many productions are still driven by the larger studios with bigger budgets, allowing them to utilise the top industry talent. The new levels of competition within the industry has seen entrants such as Netflix and Amazon challenging existing formats and demanding higher quality content from their suppliers. Additionally, production companies face concerns over the impact of Brexit and the risks around the continuation of European funding.

Help in the form of creative tax reliefs

On a brighter note, there are several creative tax reliefs which have been introduced in recent years to help production companies produce sustainable British content. Film Tax Relief (FTR) was introduced in January 2007, High-end Television Relief (HTR) and Animation Tax Relief (ATR) have been available since April 2013, with Children’s Television Tax Relief (CTR) following in April 2015. 

How are these reliefs being used?

These creative tax reliefs have been much welcomed by the industry and official statistics produced by HMRC demonstrate how valuable they are:

  • There were 180 films completed in the UK in 2017-18 which claimed FTR, with UK expenditure of £893 million. Since the relief was introduced in 2007, 2,420 films have made claims, accounting for £10.2 billion of UK expenditure. A total of £2.7 billion has been paid out to 4,495 claims since the current film tax relief was introduced in 2007, of which over £2 billion were tax credit claims paid to large-budget films and £721 million to limited-budget films.
  • There were 60 high-end television programmes completed in the UK in 2017-18 which claimed HTR, with UK expenditure of £612 million. Since the relief was introduced in 2013, 310 programmes have made claims, accounting for £2.4 billion of UK expenditure.
  • There were 15 animations completed in the UK in 2017-18 which claimed ATR, with a UK expenditure of £45 million. Since the introduction of the relief in 2013, 145 animation productions have claimed the relief, accounting for UK expenditure of £250 million.
  • There were 15 Children's Television programmes completed in the UK in 2017-18 which claimed CTR, with UK expenditure of £24 million. Since the relief was introduced in 2015, 75 programmes have made claims, accounting for £71 million of UK expenditure. A total of £18 million has been paid out in response to 85 claims for CTR since the introduction of the relief.

How do these creative reliefs work?

Whilst these creative reliefs help to provide real opportunities for production companies, there are, of course, a number of qualifying factors to consider. A brief overview follows:

Film Tax Relief

Film Tax Relief (FTR) aims to promote the sustainable production of culturally British films. It is aimed directly at film production companies for the expenses they incur on the production of a film intended for release in commercial cinemas. For a film to be eligible for relief, it must be certified as British, by passing the cultural test, and must incur at least 10% of the total production expenditure in the UK. The first day of principal photography must have taken place on or after 1 January 2007.

The Cultural Test  

The cultural test is applied for by submission to the BFI (British Film Institute).  It is a points-based test where the production needs to achieve at least 18 points out of a possible 35 to pass the test. (Together with a minimum number of points required in each section).

The 4 sections are:

  • Cultural content (up to 18 points) – Is the production set in the UK or the EEA? Are the lead talent British Citizens? Is the production based on British subject matter? Finally, is the main dialogue in English?  These are all factors determining the points score for this section.
  • Cultural distribution (up to 4 points) – Does the production demonstrate British creativity, heritage or diversity?
  • Cultural Hubs-(up to 5 points) - Is at least 50 per cent of the principal photography, special effects or digital production is in the UK?
  • Cultural Practitioners (up to 8 points) – Are the key people involved in the film British Citizens? ( Director, Scriptwriter, Composer, cast, other key staff)

In order to apply for the cultural test, there must be one film production company that is registered at Companies House and within the UK corporation tax net.  The company must be set up prior to principal photography commencing and the company must be responsible for all aspects of the film from pre-production to delivery.

High-end Television Relief

High-end Television Tax Relief (HTR) aims to promote the sustainable production of cultural British television programmes that are defined as ‘High-end’. It is aimed directly at television production companies for the expenses they incur on the production of television programmes.

UK qualifying production expenditure is defined as expenditure incurred on filming activities (pre-production, principal photography and post production) which take place within the UK, irrespective of the nationality of the persons carrying out the activity. Companies are able to claim HTR if:

  • the programme passes the cultural test - a similar test to that for FTR; 
  • the programme is intended for broadcast; 
  • the programme is a drama, comedy or documentary; 
  • at least 10% of the core expenditure must take place in the UK; 
  • the average qualifying production costs per hour of production length is not less than £1 million per hour; and
  • the slot length in relation to the programme must be greater than 30 minutes. 

Programmes commissioned together are treated as one programme.

However, companies cannot claim HTR if the programme:

  • is an advertisement or promotional programme;
  • is a news, current affairs or discussion programme;
  • is a quiz or game show, panel show, variety show, or similar programme;
  • consists of or includes an element of competition or contest;
  • broadcasts live events, including theatrical and artistic performance; or
  • is produced for training purposes.

 Animation Tax Relief

Animation Tax Relief (ATR) aims to promote the sustainable production of culturally relevant animation productions in the UK. It is aimed directly at companies producing animation programmes and was introduced on 1 April 2013. Companies are able to claim ATR on an animation programme if: 

  • the programme passes the cultural test - a similar test to that for FTR; 
  • the programme is intended for broadcast; 
  • at least 51% of the total core expenditure is on animation; and 
  • at least 10% of the core expenditure must be UK expenditure. 

Animations commissioned together are treated as one programme. The same exclusions apply as for HTR, for example, if a programme is an advertisement or promotional programme, then a company cannot claim ATR.

Children’s Television Tax Relief

Children’s Television Tax Relief (CTR) aims to encourage the production of culturally British children’s television programmes in the UK. It is an extension of HTR and ATR but is specifically for the producers of children’s television programmes.

A production company can claim CTR relief if:

  • it qualifies as British by passing the Children’s Television Cultural Test 
  • at least 10% of the core expenditure is UK expenditure; and
  • the primary target audience of the programme is for children under the age of 15.

Notes applicable to all of the above

When calculating the enhanced deduction or payable tax credit:

  • core expenditure is the total spending on directly incurred costs of making a product
  • qualifying expenditure is the spending on goods and services which are used or consumed in the UK

all are entitled to either:

  • an additional tax deduction (the enhancement) of 100% of enhanceable expenditure (the lesser of UK qualifying expenditure or 80% of total qualifying expenditure)
  • if a loss is surrendered - 25% of the loss up to the amount of enhanceable expenditure

The maximum amount in respect of FTR that can be claimed is the lower of the enhanceable expenditure for that accounting period or the amount of the loss.

What action do I need to take?

If any of these reliefs resonate with you, please get in touch with Andy Turner, who will be happy to advise you further. Andy has worked with numerous production companies and has extensive experience of using these reliefs to gain a tax advantage.

It is also worth noting that HMRC have said that whilst these reliefs are claimed via the tax return in the normal way that they will consider late claims. Again, please contact Andy to investigate whether you may be able to consider claims for past years.

With the support of his colleagues at Mercer & Hole, an award winning, top 40 firm, Andy is able to provide accountancy and tax advice, as well as specialist advice on all financial matters. He will be happy to discuss how he can help you and your business so the British TV and film industry can continue to thrive and grow. 

 

 

Date: 11th February, 2019
Author: Andy Turner

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