Government Gives Budget Sweetener to UK Films
After months of uncertainty the UK film industry breathed a cautious sigh of relief as Gordon Brown's 2004 budget bought an extension to the current tax relief system on film investment. The Chancellor announced a new system of tax relief credits with no time limit will be introduced following the expiry of Section 48 in July 2005. This new system of tax credit will be paid directly to filmmakers, covering up to 20% of production costs (up from the previous 15%).
This comes close to the announcement earlier in the year that the government has tightened a tax loophole giving tax relief to film investors, which it was widely feared would herald the death of the UK film industry and put productions like Johnny Depp's Libertine, about The Mayor of Rochester, into jeopardy.
Section 48
The Chancellor's latest tax credit will support new UK films with a budget of up to £15 million, and will be introduced after Section 48 expires. Section 48 of the 1997 Finance Act introduced 100% first year tax relief for expenditure on the production or acquisition of qualifying British films. Recent UK films including Calendar Girls, Bend it like Beckham and Gosford Park were all made using Section 48 (another tax incentive to help the industry is Section 42 which encourages Hollywood investment, but this remains unchanged).
The government is trying to improve the distribution of films in the UK, and by extending the tax credit to distribution, industry figures are hoping that the public will get to see more UK films, both here and abroad.
"The decision not to make it a transferable credit will mean that the money will go straight to the filmmakers and not to middle men," said Film Minister Estelle Morris.
The UK Film Council has also welcomed this announcement of financial support for the industry. UK Film Council Chairman Sir Alan Parker said: "The UK film industry makes a major contribution to our economic and cultural life, and the announcement of the new tax credit to support future UK film production will provide much needed certainty for the future with the benefit going direct to filmmakers."
Eligibility
Films that are produced or co-produced in the UK are eligible for tax relief. A film qualifies as being British if more than 70% of the budget is spent in the UK or if it has a co-production agreement with another country. The UK has co-production treaties with more than 30 countries (including Australia, Canada, France, Germany, and New Zealand) which means that films made in more than one country including the UK can be officially recognised as British and qualify for tax breaks.
Successful UK productions include Dogville (UK, US, Denmark, Sweden, France, Norway, Netherlands, Finland, Germany, Italy, Japan), The Pianist (UK, France, Germany, Netherlands, Poland), Underworld (UK, US, Germany, Hungary), and Sweet Sixteen (UK, Germany, Spain).
The Tax Loophole
This loophole was intended to help people who risk their own money by going into partnership with others and end up making a loss. They are then allowed to claim tax relief on their investment. In relation to the film industry, the loophole encouraged investment in films that made a loss at the box office, and helped attract finance for smaller, less commercial films. However, what some investors were doing was pulling their money out of films before they reached the cinema, but still claiming the tax relief and thereby securing themselves a tax-free, no-risk investment.
Critics of the tax system as it stood said that these abusers of the system were often deliberately making sure that films never reached the box office by withdrawing their investment early. The government has accused some co-productions of claiming to spend more in the UK than they actually do.
The loophole also allowed film-makers to sell their tax relief on to a third party, typically banks or film partnerships, often for less than it is was worth in order to receive money to finance their films up front. The Treasury was opposed to these third parties using the tax relief against their own income outside the film business.
Proponents of the loophole saw it as a much needed boost to a struggling UK film industry desperately in need of funding. Films being made in the UK such as The Libertine starring Johnny Depp and John Malkovich, and Tulip Fever starring Jude Law and Keira Knightley have been affected. It looks like The Libertine will continue shooting on the Isle of Man, but The Tulip's future is uncertain. Other films may be forced to seek funding from alternative European sources, move filming to other parts of Europe or abandon it altogether.
Dire predictions have abounded that the UK will become a no-go area for filmmaking, and that the closure of the loophole marks the death of the domestic industry. According to the BBC, "spending by Hollywood producers in the UK rose 85% to £409m in 2003 - but that is likely to slump again as a result of these changes. That will mean fewer films being made in the UK, a smaller British industry and fewer jobs for those involved in making films". Which is also likely to affect the smaller, less cash-rich film companies. Approximately 50,000 people work in film production, distribution and exhibition in the UK .
UK Film on the Up
According to UK Film Council statistics, the UK film industry is looking healthy. Bridget Jones: The Edge of Reason has helped to make 2003 an all-time record year for spending on UK film production, to the tune of £1.17 billion on 177 features.
Inward investment (features originating from overseas where more than 50% of the financing is from outside the UK and where the production is location non-specific) continued with its ten year increase in 2003 by £463 million to a total of £729 million, with the number of productions increasing from 16 to 30. Notably many big budget films accounted for this increase including Harry Potter and the Prisoner of Azkaban, Alfie, Alexander, Around the World in 80 Days, Brothers Grimm, King Arthur, Sahara and Troy.
Other UK co-productions in 2003 increased from 66 to 101, with UK spend up to £161 million, on productions such as Being Julia, Beyond the Sea, Danny the Dog, Laws of Attraction and Lazarus Child.
Domestic UK features (originated and produced in the UK) were up from 37 to 44, with production spend increasing by £113 to £269 million. Big budget productions contributing to this increase included Bride and Prejudice, Bridget Jones: The Edge of Reason, Five Children and It, Thunderbirds and Wimbledon, several of which had budgets of £30m or more.
The British public also showed their faith in the industry with cinema visits up to over 167 million last year, the second highest annual total for 30 years.
Rebecca Kemp
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