HMRC internal manual

Film Production Company Manual

Film Tax Relief: Eligible Expenditure: UK expenditure: Services not directly related to single territory

CTA2009/S1185; CTA2009 S1200

In order to determine the amount of Film Tax Relief (FTR) to which a film production company (FPC) is entitled it is necessary to determine the extent to which services and goods contributing to the film’s core expenditure are used or consumed in the United Kingdom (FPC50050).

In the case of some services, it is not obvious where the services are ‘used or consumed’. Generally these are services:

  • which do not involve, or are not directly linked to, principal photography, or
  • where the location of any physical performance is difficult to determine.

This includes, in particular, services supplied by the director, screenwriter, composer, production designer and researcher.

It is also common for some of these services to be used or consumed in more than one way. The only way to determine whether such services are used or consumed within the UK is by looking at the facts in each case, and where necessary, apportioning the costs between UK and non-UK expenditure.

Example 1: screenwriter

An FPC decided to make a film of a book in which it holds the film rights. It enlists a screenwriter to prepare the initial drafts of a screenplay and to rework them into a script which is used as the basis of filming. The nature of the services provided by a screenwriter is the provision of a script.

The script is used as follows:

Activity Location
Preparing costings and shooting schedule UK
Rehearsals UK
Principal Photography Part UK, part overseas
Post production Part UK, part overseas

The script is used in the UK to the extent to which those activities take place in the UK.

To the extent that the script is used or consumed during that part of principal photography which takes place in the UK, then it will be UK expenditure since the script is used or consumed is in the UK. Likewise, where it is used as the basis of recording a voiceover during post-production, the expenditure on the script will be UK expenditure to the extent that recording takes place in the UK.

So, in this case, not all of the screenwriter’s fees can be regarded as used or consumed in the UK. The particular circumstances will determine whether a proposed method of allocation between UK and non-UK can be regarded as fair and reasonable. An allocation key based on the extent to which the script is referred to during each stage of the production process may be reasonable.

This same analysis holds even where the writing of the script itself might have taken place overseas. It is the location where the script is used that determines to what extent the expenditure incurred on the script is UK expenditure.

It follows from this that any expenditure on a script which is supplied in order to facilitate rehearsal, principal photography or dubbing of dialogue where those activities take place outside the UK cannot be said to be used or consumed within the UK. This is true even where the screenwriter has physically written the script in the UK, and where the expenditure is incurred by a UK-based FPC.

Example 2: Voice/dialect coach

An American actor is to play the leading role in a film to be shot in the UK and set in nineteenth-century London. A voice coach is hired to work with the actor in the United States prior to the commencement of rehearsals and filming.

The voice coaching is not directly linked to principal photography. The nature of the service provided by the voice coach is time spent coaching the actor to perfect his dialect. That coaching takes place in the United States, which where the services are consumed.