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HMRC internal manual

Film Production Company Manual

Qualifying films: minimum UK expenditure

CTA2009/SS1198; CTA2009/S1214

From 1 January 2007 until 31 March 2014 to be eligible for Film Tax Relief (FTR) not less than 25% of the core expenditure (FPC50010) on the film must be UK expenditure. For films which had not completed principal photography by 1 April 2014 this level of expenditure is reduced to 10%.”

Films that are not co-productions

Where a film is not a co-production, the 25% UK expenditure condition is judged by reference to the total core expenditure by the film production company (FPC).

Co-productions

In the case of a co-production the 25% or 10% (whichever applies) UK expenditure condition is applied by reference to expenditure incurred by all the co-producers (not just to the core expenditure incurred by the UK film production company (FPC)).

This means that any core expenditure incurred by an overseas co-producer which is also UK expenditure counts when applying the 25% minimum threshold. So, for example, where the UK expenditure incurred by a UK FPC is only 20% of the total core expenditure, the 25% threshold can be met if an overseas co-producer incurs 5% or more core expenditure which is also UK expenditure.

Example

A film is made as a co-production under the terms of the UK-France bilateral treaty, thereby qualifying as a British film.

Total core expenditure on the film is £10m, of which £3m is UK expenditure. The UK co-producer incurs £2m of this expenditure, the remaining £1m being incurred by the French co-producer.

Because 30% of the total core expenditure on the film is UK expenditure, the film will meet the minimum UK expenditure threshold and, provided the other tests are met, the UK FPC will be entitled to Film Tax Relief on the basis of the UK core expenditure which it has incurred.

Interim accounting periods

Whether a film meets the 25% or 10% (whichever applies) UK expenditure condition cannot be determined until after the end of the accounting period in which the film is completed or abandoned (the ‘final accounting period’).

But tax returns for any earlier periods (‘interim accounting periods’) can include claims to FTR based on an expectation that the condition will be met if they include a statement of planned core expenditure that is UK expenditure and this indicates that on completion of the film the UK expenditure condition will be met.

Claims for interim accounting periods will be revisited, and FTR claims appropriately revised if it turns out the final amount of core expenditure that is UK expenditure is less than 25% or 10% (whichever applies) but claims have been made as if the condition would be met.

Final statement of the core expenditure on the film that is UK expenditure

The tax return for the final accounting period must:

  • indicate that the film has been completed or abandoned, and
  • include a final statement of the core expenditure on the film that is UK expenditure.

The final statement should include all core expenditure on the film by the FPC. It should take account, as far it is possible to estimate such amounts with reasonable certainty, of the amount of any deferred payments of core expenditure that is UK expenditure that can be expected to be paid out in the future (whether by the FPC or other parties).

Later accounting periods

The question of whether or not a film satisfies the UK expenditure condition is determined by reference to the final statement of the core expenditure on the film that is UK expenditure.

It is possible that if the FPCs deemed trade continues into accounting periods beyond the ‘final accounting period’ (e.g. because it continues to retain and exploit an interest in the film) subsequent amounts paid out as deferred payments may exceed the amount of such payments included on an estimated basis within the final statement of the core expenditure on the film that is UK expenditure. Provided that the original estimates were reasonable in the circumstances in which they were made, the film should continue to be regarded as satisfying the UK expenditure condition - i.e. its status will not be revisited in the light of subsequent events.