Film Tax Relief changes approved in Budget - Summary of amendments

Posted on 24 March 2014

The Chancellor this week confirmed in his Budget speech that the package of changes to the Film Tax Relief (FTR) set out at Autumn Statement 2013 has now received State aid approval. A number of key changes will take effect from 1 April and are detailed in this article below.

According to Government, the changes are all designed to make the FTR easier to use and more attractive to film makers from around the world. A Government statement also confirmed the UK’s commitment in supporting the sector and that it is very aware of the outstanding cultural and economic contribution the industry makes to the UK.

The following changes to the FTR will come into force from 1 April 2014:

  • Film Tax Relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter, for small and large budget films. This will make the Film Tax Relief easier to use and more attractive, as well as eradicate the ‘cliff edge’ between the 20% and 25% schemes
  • The minimum UK expenditure requirement will be reduced from 25% to 10% to encourage further investment in the UK and benefit visual effects and wider industry, helping UK independent production companies by encouraging minority co-productions where the UK spend is less than 25%.
  • The cultural test will be modernised. It will be expanded to allow for European as well as British Culture, in line with other creative content tax reliefs. The test will also include an increase in the points available for principal photography/ special effects/ visual effects and English language.

The UK cultural test is a points based system which gives each film a score on a number of criteria, grouped into four sections; (a) cultural content, (b) cultural contribution, © cultural hubs and (d) cultural practitioners. Under the updated Cultural Test, the maximum number of points awarded for Cultural content Section A4 will be increased from 4 to 6 points and the maximum number of points awarded for cultural hubs Section C1 will increase from 2 to 4 points. There will be a maximum score of 35 points for all four sections, with a pass mark of 18.

The cultural content requirements will include EEA as well as British, settings, subject matter, characters and language.

The Cultural Test will also operate an updated “Golden Points Rule” to ensure that a film cannot pass with only points in sections C and D, together with the points for language (A4). Thus, a film would be required to score 2 or more points in A1, A2 or 4 points in A3 in order to pass the test.

The first two changes will be made through the Finance Bill 2014, which is likely to receive Royal Assent towards the end of July. Changes to the cultural test will be made through secondary legislation, laid after Royal Assent and likely to be in force in the Autumn. Claims for tax relief can then be submitted to HMRC, and backdated to 1 April.

Applicants will need to have received an interim certificate from the BFI. Applicants can submit draft pre-approval applications to the BFI Certification Unit and, if appropriate, receive a letter of comfort in relation to their application until the legislation is in force. There are transitional procedures allowing applicants to apply under the old or the new cultural test.

The British Film Commission has also confirmed that it will host a number of events to promote the enhanced tax relief, the first of which take place in Los Angeles next week.

Iain Smith, Production Guild board member, British Film Commission Chairman and film and television producer, said of the announcement within the Budget: “The British Film Industry continues to demonstrate its value both in terms of job creation, international investment and creative and technical expertise, as demonstrated by British successes as this year’s Academy Awards and BAFTAs. We are delighted by this further recognition of the value of the Creative industries to the British Government.”

Adrian Wootton, Chief Executive of the British Film Commission and Film London, added: “The BFC co-ordinated an industry response to the Government consultation on the enhancements to the Tax Relief so we are thrilled that they will be implemented from 1 April. These changes will make the UK’s world-class production industries even more attractive and accessible to international and British filmmakers and further build on and expand the UK’s business prospects. Importantly it will allow the UK’s world-class VFX and post production sectors to remain competitive and the BFC will be hosting a group of senior US executives next month to capitalise on the new opportunities. It’s also important to note the hugely positive impact of the tax relief changes on the UK’s international co-production prospects, opening up opportunities with a wide range of international territories.”

Further information about the Film Tax Relief can be found on the HMRC website.

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