Tax reliefs or tax refunds in the UK’s high-flying film industry are among the most transparent, widely recognised and inclusive production incentives in the world.

If you’re a film producer in the UK, then this article will help you understand how your feature film may benefit as a result.

What is Film Tax Relief/Refund?

All British qualifying films, irrespective of their budget, can claim a payable cash rebate through the FPC (Film Production Company) of up to 25% on qualifying UK expenditure.

At present, film tax refund is capped at 80% of the core expenditure and within this 80% cap, there’s no limit on amount you can claim.

The role of the FPC

The FPC responsible for your film must comply with the UK corporation tax net. They are also responsible for making the necessary arrangements for pre-production, principal photography VFX, post-production and delivery.

We strongly recommend that this be incorporated at the earliest so that the costs can be included in the film tax refund claim.

Your film company may be an ‘off the shelf’ company based in the UK which has been set up by an international parent company – work may be subcontracted but it needs to reflect in the FPC’s accounts.

Additionally, loan-out companies may be used but this must also reflect in the FPC’s accounts.

Film Tax Refund – All you need to know
Film Tax Refund – All you need to know

Qualifying criteria for Film Tax Refund

In order to qualify for film tax refund, the film must be intended for theatrical release. However, should there be any doubt about the intention for theatrical release, then these underlying factors would act as a substitute in order to help you qualify:

  • A financial plan detailing that the film was originally intended for theatrical release.
  • The production must be a normal full-length or short feature film which are typically screened in UK cinemas.
  • Production must be in a formal appropriate for commercial/cinema release.
  • Payment to actors along with all participants must be in accordance with those for cinema films (and not for television series work, for example).
  • The designated individual should be able to demonstrate, that toward the end of the accounting period, the intention is there to pursue a contract for screening the film in cinemas.
  • The film must be certified as British.

With the above said, one factor which would go directly against the intention for theatrical release is when no commercial cinemas are screening that particular kind of film. It’s worth reading HMRC’s detailed guidance in this regard.

What are minimum UK expenditure and included costs?

At least 10% of your film’s core expenditure must be UK expenditure. Here are the included costs:

  • Production expenditure qualifying in the UK is defined as ‘expenditure used or consumed’. So, this essentially means any costs incurred by the FPC on filming activities such as pre and post-production, principal photography, VFX, etc. which take place within the country, no matter what the nationality of the person carrying out the above film-related activities.
  • Above-the-line, which includes actors and directors, is a part of included costs, no matter what their nationality.
  • Any core expenditures incurred at a later stage of the project where ‘residuals’ are to be paid, for example, will attract more film tax relief – for instance, any further payments made out to actors and/or directors.
  • In order to qualify for UK film tax relief/refund, there is no obligation whatsoever to carry out all production activity locally – it is possible to still qualify for UK film tax refund while shooting the film overseas but carrying out certain elements of the production process in the UK. For example, VFX, post-production or principal photography, but only if the minimum expenditure requirement of 10% is satisfied including all other qualifying criteria.
  • In the event that some elements of production are taking place in the UK, such as VFX or post-production, the FPC must be incorporated in the UK as soon as possible, so that you can qualify for UK film tax refund.
  • Apart from VFX, post production or soundtrack recording costs which may qualify for film tax relief, prorated ‘neutral’ costs may also qualify you – i.e. qualifying costs spread throughout production like writers, directors, senior producers, insurances, etc. But these qualify only if the related activity is within the UK.

As an example, if VFX/post production/soundtrack recording costs come up to 20% of the total core expenditure, then 20% of ‘neutral’ costs will also qualify (again, as long as the activity is within the UK only).

What’s not included?

  • Bond
  • Capital expenditure
  • Development
  • Entertainment
  • E+O insurance
  • Financing
  • Option payments for booking rights
  • Publicity

How to access UK Film Tax Refund?

  • Film Tax Refund is only available to British qualifying films.
  • Films need to pass either the Cultural Test or qualify as an official co-production, in order to qualify for tax relief.
  • As pointed out earlier, the film must be intended for theatrical release only.
  • Films must reach a minimum UK spend requirement of at least 10% – this includes films made under official co-production treaties.
  • To quickly reiterate, there is no cap on how much you can claim.

Film tax refund can be claimed on the lower of either 80% of your total core expenditure or the actual UK expenditure incurred.

For instance, if you incur £2m in terms of core expenditure, and all of this is in the UK, then the total you can claim will be for a maximum of £1.6m. But if only 50% of your film was produced in the UK, then the maximum that can be claimed will be half of that – i.e. £800,000.

How do I establish my claim?

Although the tax relief available to film makers is generous, the claims need to be properly made to ensure that they are in line with both HMRC and DCMS criteria. Therefore, claims need to be reviewed very carefully before they are forwarded. Working with our experienced tax advisers is the first step to ensuring that your claim meets the underlying criteria and that you get the full relief you are entitled to.