How do UK film tax credits work?

Dec 14, 2021 | Business tax

Because the Government wants to encourage the production of films in the UK, bringing jobs to our shores and projecting cultural influence abroad, they offer generous tax relief to film producers.

It’s worth you understanding the basics because, from the biggest Hollywood producers to small UK indie companies, any company may be eligible for this valuable tax relief – as long as it passes the cultural test.

What is the cultural test?

The British cultural test is designed to ensure the Government gets what it wants out of the bargain – jobs and global influence. The British Film Institute (BFI) manages and certifies the test.

To pass the test you need to amass at least 18 out of 35 points in the criteria that they set out. Points are available in the following four spheres:

  • cultural content (18 points)
  • cultural practitioners (8 points)
  • cultural hubs (5 points)
  • cultural contribution (4 points).

There is also a route to qualifying for the tax relief by being an official co-production, where a bi-lateral treaty is in place.

The BFI can issue an interim certificate if the tax relief needs to be claimed while the film is still in production, and a final certificate once the film is complete.

Further eligibility requirements

With the cultural test passed, there are a few other criteria to meet:

  • your film must be for a theatrical release
  • at least 10% of the core costs (pre-production, principal photography and post-production) must relate to activities carried out in the UK
  • your company must be responsible for the core activities and delivery of the film
  • your company must be actively involved in planning and decision-making; and directly negotiate, contract and pay for services, rights and goods
  • your company must be subject to UK corporation tax.

How much is UK film tax relief worth?

Film tax relief works by allowing you to claim an enhanced deduction on your expenditure.

This will either reduce the corporation tax that applies on your profits, or create or increase a loss. You can surrender a loss to HMRC and then claim a tax credit worth 25% of its value.

There is no absolute cap on the enhanced contribution you can claim, but it will be the lower of either 80% of total core expenditure or the amount of UK core expenditure.

Qualifying expenditure

HMRC requires your expenditure to be on goods and services “used or consumed” in the UK for it to be qualifying for film tax relief purposes.

You don’t need to worry about the nationality of the people carrying out the activity.

How do I claim UK film tax relief?

We can help you identify whether you are eligible, and then carry out the calculations to determine the value of the tax relief and make the claim.

Film tax relief is claimed through your corporation tax return. You need your British cultural certificate and statements of core expenditure and the breakdown of expenditure by category.

As specialists in helping digital, creative and media firms optimise their tax position, we are perfectly placed to help you gain this relief compliantly.

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