HomeInsightsBudget 2012 how it affects the media sector


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The Wiggin/RSM Tenon report estimated that a targeted tax credit for high-end TV production similar to that received by the film industry would generate an additional direct production spend of at least £350 million per year as a result of production taking place in the UK. Based on accepted industry figures, this would mean a total return of over £1 billion per year to the UK economy and far-reaching benefits to regional economies in terms of employment, skills and infrastructure.

The Government will now enter into a period of consultation with the TV industry to work out the details of the new TV tax credit, before new legislation comes into force bringing it into effect (probably with effect from 1 April 2013). Wiggin and RSM Tenon will be taking a leading role in that consultation process. A similar tax relief is to be introduced for culturally British TV animation programmes. It is proposed that the legislation will be introduced in the Finance Bill 2013 (subject to EU State Aid approval).

Video Games

The Chancellor’s announcement for corporation tax relief for the production of culturally British video games, is most welcome. The UK has slipped from 3rd to 6th place in the video games development sector in the last 5 years as other countries, e.g. Canada and France, have surged forward, propped up as they are by tax credits. This relief will prevent the brain drain and downturn in staff recruitment for the UK’s games industry and help bolster recruitment for the bright young “design and technology” students that are leaving the UK’s universities jobless. Accessing the tax relief will help a games development business more efficiently manage its development plans: many designs obviously never get off the ground and so companies face long periods of expenditure without, until now, any income. Legislation will be in the Finance Bill 2013, and is proposed to take effect from 1 April 2013 subject to EU State Aid approval.

EIS and SEIS reliefs (see below) can both be used to some extent in the video games industry. However, EIS requires the investee company to commence a qualifying trading activity within two years from the raising of the EIS funds, which can be problematical in certain cases where only research and development is being undertaken. SEIS is more relaxed on this point but is limited to investments of £150,000 per company. Both EIS and SEIS have complex rules which can deter the uninitiated and so the introduction of the video games tax relief is most welcome.

Enterprise Investment Scheme (EIS)

It has been announced today that the limit on funds which a company can raise through VCT and EIS will be increased to £5m from April 2012, subject to EU State Aid approval. This is below the £10m that had been previously suggested and to that extent will be a blow to companies in the media sector who were looking for a higher limit. The cash pot available has however been diluted by the announcement that there will also be relief for culturally British TV production, animation and video games (see above).

The other limits announced in December 2011 to allow larger companies to benefit from EIS have been reconfirmed: namely that companies can qualify if they have fewer than 250 full time employees and gross assets of less than £15m before the EIS issue, and £16m after (from £7m before the issue and £8m after). Again these limits are subject to final EU State Aid sign off but are proposed to apply to shares issued on or after 6 April 2012.

Attention will be focused in the Finance Bill to be published on Thursday 29th March 2012 to ascertain the extent of any anti-avoidance rules. These rules, which will apply equally to EIS and SEIS, were heralded in the Pre-Budget Statement in December 2011, and are expected to clarify that contrived, artificial arrangements where existing trades are hived off simply to access the tax reliefs, or used to route EIS/SEIS funds through a company lacking substance or risk, will not be allowed.

Seed Enterprise Investment Scheme (SEIS)

To recap on SEIS, the scheme will be introduced from April 2012 and will provide income tax relief of 50 per cent for individuals who invest in shares in qualifying seed companies. The Government will also offer a capital gains tax (CGT) holiday: gains realised on the disposal of assets in 2012-13 that are invested through SEIS in the same year will be exempt from CGT.

Following consultation since December 2011, changes have been made to the proposed SEIS regime to allow companies to (inter alia) have subsidiaries (this will help SEIS companies which want to expand) and to allow previous (but not current) employees to obtain SEIS relief.

Remote Gambling

The Chancellor announced today that it will change the UK’s 15% remote gaming duty, which is currently based on the place of the supplier, to a place of consumption duty. Under the new regime, operators will pay tax on gambling profits generated from customers in the UK, whether the operator is in the UK or offshore. The fine detail is to be the subject of consultation with the industry, and it is proposed that the changes will be operative from December 2014 (although this will be kept under review). Thus offshore operators who provide remote gaming to UK customers will have to pay UK duty (either at 15% or whatever compromise rate that might be introduced). Whilst it would have been hoped that as a quid pro quo British operators who provide remote gaming services to non-UK customers would not be taxed, the proposal is to deal with this issue through double tax relief. Accordingly with effect from 1 April 2012 double tax relief will be introduced for remote gaming duty, general betting duty and post betting duty. Thus, if a UK operator pays UK duty on its gambling business, it will get relief for any tax that it has to pay in any other country. The idea is that as other countries introduce a place of consumption basis for taxing remote gambling, the UK operator should not be disadvantaged, and so will remain in the UK and thus tax revenues and jobs in the UK will be protected. However if the UK level of duty (at 15%) is higher than that of the countries where a UK operator’s customers are, there may still be an incentive for the UK operator to migrate offshore.

As indicated, both these measures – the proposal to tax overseas operators with UK customers and the double tax relief regime – are aimed at creating a level playing field between offshore operators and those based in the UK. However, gaming companies may still move, and/or remain, offshore so as to avoid UK corporation tax on their profits and to keep their irrevocable VAT on overheads, e.g. advertising and marketing costs, to a minimum. So one wonders how far this will help the UK gaming industry, which may still be at a disadvantage to its offshore brethren.

Online gambling presented a challenge to the EU, which tries to balance the freedom to provide services across EU member states (Article 49 of the Treaty on the Functioning of the European Union) with the demands of EU member states to protect their gambling markets and monopolies. The UK has complied with Article 49 by opening its gambling market to EEA operators. It is an interesting question as to whether EU law would allow a restriction on the provision of gambling to UK citizens from an EU gambling operator solely because that operator, established outside the UK but in the EU, declined to pay UK tax. Tax alone has never been a justification for derogation from Article 49.

Machine Games Duty: The Chancellor also announced the introduction of a Machine Games Duty to apply from 1 February 2013. To-date, the VAT treatment of gaming machines has frequently been challenged in the Courts, leading to a loss of tax to the UK Exchequer. The new duty will ensure a proper tax rate from gaming machines, with a standard rate of 20 per cent and a lower rate for low-prize machines of 5 per cent of net takings.

Other impacts for media companies
  • Corporation tax: the main rate of corporation tax will be reduced by an additional 1 per cent from April 2012. The rate will therefore fall by 2 per cent from 26 per cent to 24 per cent in April 2012, to 23 per cent in April 2012 and to 22 per cent in April 2014.
  • Research and Development (R&D) tax credits: As announced in Budget 2011, with effect from 1 April 2012 the rate of R&D tax credits for small and medium enterprises (SMEs) will increase from 200 per cent to 225 per cent; the limit of SME payable credit, based on their PAYE/NICs liability, will be removed; and the £10,000 minimum expenditure requirement for large companies and SMEs will be abolished.
  • Cap on unlimited tax reliefs: An unwelcome announcement is that legislation will be introduced in the Finance Bill 2013 to apply a cap of effectively £50,000 on income tax reliefs claimed by individuals. This will only apply to reliefs which are currently unlimited.
EMI option schemes

The individual option grant limit for tax efficient enterprise management incentive (EMI) option schemes will be increased from £120,000 to £250,000, to commence as soon as possible following EU State Aid approval. To-date, awards have had to be made, if at all, to employees above the £120,000 limit using complicated “growth shares”.

Entrepreneur’s relief will be extended to gains on shares acquired through EMI. Currently, since there is a requirement under entrepreneur’s relief for the shareholder to hold the shares for 12 months prior to disposal, an employee acquiring shares on exercise of an EMI option on an exit event, such as a sale or float, could not easily obtain 10% entrepreneur’s relief on his capital gain. The new proposal will relieve this issue, thereby facilitating tax efficient investment in companies within the media sector. The Government are also to consult on extending the scheme to academics employed by a qualifying company from April 2013, subject to EU State Aid approval.

“Super-connected” broadband cities

A final announcement which will significantly benefit companies in the media sector is that ten cities – Belfast, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle – will become “super-connected” cities as part of the £100m broadband investment announced in December 2012.

About Wiggin

Wiggin LLP is a boutique law firm with an ethos of innovation and creativity. It is recognised by many as the best in the media business and has been a pioneer in media for over 20 years. The firm specialises exclusively in working with clients operating in or across the music, film, TV, broadcast, digital media, sport, betting and gaming, technology, publishing and computer games sectors. It has earned an international reputation for fresh thinking and innovative approaches.

Clients include BBC Worldwide, Bauer, BT, Channel 4, Columbia Pictures, Condé Nast, Discovery, Disney, Endemol, FACT, Fox, HBO, Hodder & Stoughton, G2, IGT, Ingenious, ITV, The International Cricket Council, Manchester United FC, Mansion, Marvel, MPA, Paramount Pictures, Party Gaming, Perform, Pokerstars, PPL, Racing UK, Random House, Time Warner Books, Times Newspapers, Turf TV, Twentieth Century Fox, UEFA, UKTV, Virgin Media and Warner Bros.

If you have any queries on the above please contact Sue Crawford.
sue.crawford@wiggin.co.uk t: +44 (0) 20 7927 9685
or your usual Wiggin contact