March 20, 2014

The increased rate and the reduction in UK expenditure requirements will be set out in the Finance Bill. The Finance Bill is due to be published 27 March and is likely to receive Royal Assent in late July. Claims for tax relief based on these revised rules will need to wait until Royal Assent is given, though will then have effect from April. The revised Cultural Test may not be issued before the Finance Bill receives Royal Assent in the summer.

Increased rate of relief for larger budget films:

• The rate of tax relief for films with a qualifying expenditure in excess of £20 million will be raised. From April 2014, all films will receive 25% of the first £20 million of qualifying UK expenditure, with any excess qualifying UK expenditure still receiving a 20% tax credit.

• This means that producers of such larger budget films will receive an increase of 5% on the first £20 million – namely, an additional £1,000,000 of tax relief.

• The existing 25% tax relief on lower budget films and on high end TV and non-film animation productions remains unchanged.

Reduction in the level of UK expenditure:

• Since the introduction of the film tax credit regime in 2007, at least 25% of total qualifying expenditure on a film has had to be UK expenditure in order to qualify for any UK tax credit. This minimum UK spend threshold for film productions will now be reduced to 10%.

• This will help independent production companies by encouraging minority co-productions on which the UK spend is less than 25%.

• The 25% floor will still apply to high end TV and non-film animation productions.

Modernised Cultural Test for feature films:

The Cultural Test for the film tax relief will be modernised to align it with incentives in other member states and to support visual effects and wider film production. 

We await publication of the new Test (expected after the Finance Bill 2014 receives Royal Assent in the summer), but we understand that the key changes will be based on the form published as part of the consultation process as follows:

films will need to score 18 out of 35 available points (not 16 out of 31, as under the current Test).

in Section A (Cultural Content):

1. the points available (for the setting of the film, its lead characters, its subject matter/underlying material and its language) will relate to the EEA not the UK; and
2. 6 points will be available if the original dialogue is a language of the EEA (instead of 4 points for being in English).

4 (not 2) points will be available based on the location of principal photography, special and visual effects:

1. points will be awarded (i) for principal photography/SFX if 50% or more takes place in the UK and (ii) for visual effects if 50% or more takes place in the UK; and
2. subject to a maximum score of 4 points, an additional 2 points will be awarded if 80% or more of either PP/SFX or VFX takes place in the UK.

The Cultural Tests applicable to high end TV and non-film animation productions remain unchanged.

Boosts for other UK creative industries:

• Theatre: The Government will introduce a new theatre tax relief at 25% for qualifying touring productions and 20% for other qualifying productions, with effect from 1 September 2014.

• Video games tax relief and high end television tax relief: The Government will extend video games tax relief to goods and services provided from within the EEA and apply a cap on subcontracting of £1 million per game, subject to state aid clearance. The legislation will also be clarified so that only those games and television programmes qualifying for relief will be treated as separate trades.

Today’s announcement is more excellent news for the UK’s creative industries. The changes will be of particular benefit to the UK post-production/VFX sector, where the increased financial incentive for larger budget films, the reduced minimum UK expenditure level and the expected amendments to the Cultural Test are likely to mean an increased number of films being attracted to the UK to utilise its world class VFX houses, thereby addressing the current loss of such work to overseas suppliers.

Overall, it is further public recognition by the Government not only of the opportunities for growth of the UK creative industries in a global market but of the valuable contribution these sectors make to the country’s economy.

This news comes after the introduction last year of the new UK high-end TV tax credit, following a campaign spearheaded by Wiggin partner, Charles Moore. The high-end TV tax credit has resulted in a fresh influx of television production work to the UK and a genuine and tangible impact on both the industry and the wider economy.

For further information about what this means for you, please contact charles.moore@wiggin.co.uk or guy.sheppard@wiggin.co.uk.