The UK has offered creative industry tax reliefs for productions post 2007, subject to certain requirements and limits. Popularly known as FTR, the UK Film Tax Relief offers relief upto 25% of the cost spent on a film. There are a few clauses which need to be read and interpreted in the right context to understand how this 25% FTR works. There are also a few pre-requisites and the limit is capped at a specific percentage. This can flummox people into misinterpreting it in the first read through, and it pays to use the services of a qualified accountant to understand the fine nuances and apply the same. Here are some of the main requirements that need to be borne in mind.
Requirement of spending a certain percentage of the film’s budget in the UK
This means that 10% percent of the total budget needs to spent in the UK to qualify for UK Film Tax Relief. Some kind of expenditure needs to be spent in the UK – this could be filming on locations in the UK, or any kind of pre or post production activity in the UK. This clause also applies to individuals who are not British nationals. The claim cannot be made for expenses incurred towards sales and distribution.
What exactly is the Cultural Test?
One of the pre-requisites for qualifying for the UK Film Tax Relief is the need to pass the Cultural Test. This is where entities need to fully understand what it means to pass a cultural test. Effectively there are four dimensions which add to a total of 35 points, out of which a film needs to secure 18 points to pass. This apart there is the clause of the registration of the film production company. The FPC needs to be registered with the Companies House and needs to be an entity that is registered for Corporation Tax. Here, it is important to note that the FPC needs to be incorporated before the filming and needs to be involved in the whole lifecycle of the film project. The points which a film needs to secure to pass the cultural film filter are cultural content, cultural contribution, cultural hubs and cultural practitioners by securing upto a maximum of 18, 4, 5 and 8 points respectively.
What exactly is the rebate?
A company that is established for the purpose of movies will typically be registered for corporation tax, but will actually not be paying any, therefore, the FTR will mostly be a cash rebate of 25% of the main expenditure, which will be subject to an upper limit of 80%. This means that even if 100% of your core expenses were spent in the UK, for the purpose of calculations of rebate, you can claim 25% of only 80% of the total expenses. This will be claimed from the HMRC at the time of filing the corporation tax return.
Theatrical release of films
Another important aspect that an FPC which claims the FTR needs to clear is the theatrical release. The movie needs to be ‘intended for theatrical release’, which means that it should be made with the purpose of screening it. The movie needs to be made in a format that is required for exhibition in cinemas where public pay for viewing it. A major portion of the earnings should be shown to be earned by screening the film on screens. This also means that you need to have Digital Cinema Print, in addition to disbursing payments to those associated with the making of the film at rates as accepted by the Broadcasting Entertainment Cinematograph and Theatre Union.
The various clauses and requirements require specialist advice on the registration of a company, registration for corporation tax, compiling expenses and meeting obligatory requirements. An FPC that aims to claim UK Film Tax Relief would do well to use the services of an accountancy that has vast exposure to media, in the early stages itself to meet all requirements and qualify successfully to earn the rebate. For the record, the government has granted tax relief to the extent of 415 million pounds last year.
Author Bio:
Sumit Agarwal – A specialist accountant and tax adviser for freelancers, contractors and small businesses since 2005, He is an expert in business growth and development strategies. He has been helping variety of UK industries including Media, Film & Entertainment Industry. He is Specialist accountant in the media and entertainments industry.
