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HMRC internal manual

Film Production Company Manual

Overview and general definitions: legislation

The main legislation relating to the taxation of film production companies (FPCs) and Film Tax Relief (FTR) was originally introduced in Finance Act 2006:

Chapter 3 - Sections 31-53 - (Films and Sound Recordings),

Schedule 4 (Taxation of Activities of Film Production Company), and

Schedule 5 (Film tax relief: further provisions).

These provision have now been consolidated incorporation Tax Act 2009 Part 15.

The provisions introduced new rules for the taxation of film production by companies, removed the previous exclusion of film acquisition from the FA02/SCH29 regime for the taxation of gains and losses from intangible fixed assets, and abolished - for both individuals and companies - the previous tax treatment of film production and acquisition in F2A/92, F2A97 and ITTOIA2005.

As enacted, the new relief would have applied to films commencing principal photography on or after 1 April 2006 (but see below).

The FA06 provisions are amended and brought into effect by various other legislation:

SI2006/643 The Films (Definition of “British Film”) Order 2006 Replaced the previous definition of a British film, in Schedule 1 Films Act 1985 - which was largely based on the amount of UK expenditure incurred in its production - with a new test (the “first cultural test”) based on points awarded in various categories
SI2006/3399 The Finance Act 2006, Section 53(1) (Films and Sound Recordings) (Appointed Day) Order 2006   
  Brought the provisions of FA06 into force on 1 January 2007.  
  SI2006/3265 The Finance Act 2006, Section 53(2) (Films and Sound Recordings: Power to alter Dates) Order 2006 
  Altered the commencement date, originally been intended to be 1 April 2006, to 1 January 2007, and made other consequential changes to the provisions in FA06/S46 and FA06/S47 phasing out the former films reliefs.  
  SI2006/3430 The Films (Definition of “British Film”) (No.2) Order 2006
  Replaced the definition of “British Film” introduced by SI2006/643 with a narrower definition, agreed with the European Commission. This new definition applied from 1 January 2007.  
  SI2007/678 The Corporation Tax (Surrender of Terminal Losses on Films and Claims for Relief) Regulations 2007
  Provides machinery for the transfer of terminal losses between two film production companies within the same group.  
  SI2007/1050 The Corporation Tax (Taxation of Films) (Transitional Provisions) Regulations 2007
  Makes provision for films in production at 1 January 2007 to be eligible for film tax relief, provided they are intended for theatrical release, and are certified as British. Where such a film fails to pass the second Cultural Test, the previous reliefs in F2A92 and ITTOIA2005 (but not the enhanced relief for low budget films) may be claimed, provided that any acquisition expenditure is incurred by 31 March 2008.  
  FA07/S58 Election out of special film rules for film production companies 
  Amended FA06/S32 to allow a company to elect not to be treated as a film production company in respect of any of its films. This allows companies to opt out of the entire FA06 structure should they so wish. They will then be subject to normal tax rules in respect of any film production.