What is UK Film Tax Relief?

The entertainment industry is on the rise worldwide. Every year we see new actors, directors and producers entering this industry trying to showcase their skills. You may chance to be a producer, planning to film in the UK, because London is an attractive destination for all content production. The wealth of world-class talent and resources are also underpinned by generous and user-friendly tax reliefs that can help you bring your project to the capital. Let us guide your way with all the information that you need.

Film tax relief is part of a relief scheme provided by the British government for creative industries, known as creative industry tax reliefs. The relief is aimed at helping to bring down the production cost thereby encouraging companies to make films, TV shows or video games etc. in the UK.

The following conditions apply to gain UK film tax relief:

• The film needs to be certified British. It must either pass the cultural test or qualify as an official coproduction;
• The film must be intended for theatrical release;
• The film, whether qualifying under the cultural test or a co-production film, must meet the minimum UK qualifying production spend requirement of 10%;
• The Film Production Company (FPC) must be responsible for all the film making activity, from preproduction through to delivery, within the scope of UK corporation tax net; and that FPC needs to be registered with Companies House and set up before principal photography begins.

If the conditions are met then the FPC can claim an additional deduction in computing their taxable profits and, if this results in a loss, may surrender that loss for a payable tax credit.

British Certification:

In order for the FPC to claim tax relief, the film needs to qualify as British, by meeting the requirements of one of the following:

• The Cultural Test
• One of the UK’s International bilateral co-production treaties
• The European Convention on Cinematographic Co-production

If qualifying, then the FPC may apply to the British Film Institute (BFI) for certification as British.

The Cultural Test:

The Cultural Test is defined in law with points awarded based on British content. It is made up of four sections:

• Cultural content
• Cultural contribution
• Cultural hubs
• Cultural practitioners

Each section has a number of questions, with points awarded to each answer. A film needs to score at least 18 out of a possible 35 points but is then subject to the ‘golden points rule’.

Intention for Theatrical Release:

One of the qualifying conditions is that there must be an intention for theatrical release.

If there is any doubt about the intention, the following factors would count in favour of the film being intended for theatrical release:

• A finance plan written on the basis that the film will be released theatrically;
• Being a normal full-length or short feature film of a type commonly shown at cinemas;
• Production in a format suitable for theatrical showing at a commercial cinema;
• Payment to actors and other participants on terms in line with those prevailing for cinema films (rather than, for example, television work), and;
• The relevant person can demonstrate, at the end of the relevant accounting period, the intention to seek a contract to present the film in the cinema.

A factor which could count against an intention for theatrical release is where there are no commercial cinemas that show that particular type of film.

A film may be made for many purposes and HMRC expect a significant proportion of the expected earnings of the film to be from its exhibition otherwise it may not be regarded as truly being intended for theatrical release. The phrase significant proportion is not statutorily defined; its level will depend on the facts in each case, however HMRC guidance advises they may accept 5% of total estimated income.

What constitutes UK Expenditure?

To qualify for Film Tax Relief the film must have at least 10% of its core expenditure on UK activities.

The amount of relief to which a film production company is entitled is also limited by the amount of core expenditure which is also UK expenditure.

UK expenditure is defined as:

‘…expenditure on goods and services which are used or consumed in the United Kingdom.’

Please note this is independent of the supplier, or the location of the purchaser. The goods or services need to be identified, and the place where they are used or consumed.

Film Production Company (FPC):

The company undertaking production of the film, is generally termed the Film Production Company (FPC). To claim Film Tax Relief there are conditions on that FPC.

• The FPC responsible for the film must be within the scope of UK corporation tax.
• It must make the whole film including the arrangements for pre-production, principal photography, post-production & delivery of the completed film.
• It must be actively involved in production planning and decision making.
• It must directly contract for rights, goods and services relating to the film.
• It is best to incorporate sooner rather than later so costs can be included towards the Tax Relief claim, but must be incorporated before filming starts.
• It can be a UK ‘off-the-shelf’ company set up on behalf of an international parent company.
• Work can be sub-contracted to others, as long as this is reflected in the FPC’s accounts.
• Loan-out companies can be used as long as this is reflected in the FPC’s accounts.

FPC conditions are different for co-productions. If you are working in UK film industry and struggling with accounting, then please call us on 03300 887 912 to discuss with our Tax experts.

FAQs on UK Film Tax Relief

What is UK Film Tax Relief?

UK Film Tax Relief is a government incentive designed to support the UK film industry by providing tax relief to qualifying British film productions.

Who is eligible to claim UK Film Tax Relief?

British film productions that meet certain cultural and production criteria are eligible to claim UK Film Tax Relief. This includes feature films, animations, high-end television productions, children’s television, and more. Film production companies must meet specific eligibility criteria and certification requirements to qualify for this tax relief.

How much tax relief can a production company claim?

Qualifying productions can claim up to 25% of their UK core expenditure as tax relief. Additional relief may be available for certain aspects of the production. The amount of tax relief is calculated based on 80% of the total core expenditure, with no cap on the amount that can be claimed.

What types of expenses are eligible for UK Film Tax Relief?

Eligible expenses include pre-production, principal photography, post-production, visual effects, and certain other costs directly related to the production of the film. These must meet the HM Revenue & Customs’ definition of UK qualifying production expenditure, covering activities such as animation shooting and designing within the UK.

How does the application process for UK Film Tax Relief work?

Production companies must apply to the British Film Institute (BFI) for certification as a British film. Once certified, they can then claim the tax relief when filing their corporation tax return.

Are there any restrictions on the type of content that can qualify for UK Film Tax Relief?

To qualify for UK Film Tax Relief, productions must pass a cultural test or qualify as an official co-production under relevant international agreements.

Can non-UK companies benefit from UK Film Tax Relief?

Non-UK companies can benefit from UK Film Tax Relief by setting up a UK subsidiary or co-producing with a UK production company.

How does UK Film Tax Relief benefit the UK economy?

UK Film Tax Relief helps to attract international productions to the UK, creating jobs, boosting local economies, and strengthening the country’s position as a global hub for film production.

Are there any deadlines or timeframes for claiming UK Film Tax Relief?

Production companies must claim UK Film Tax Relief within two years of the end of the accounting period in which the production is completed.

Where can I find more information about UK Film Tax Relief?

For more detailed information about UK Film Tax Relief, including eligibility criteria, application process, and guidelines, you can visit the official website of the British Film Institute (BFI) or consult with a tax advisor familiar with the scheme.