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HMRC internal manual

Film Production Company Manual

Film Tax Relief: Eligible Expenditure: UK expenditure: Post-production services

CTA2009/S1183; CTA2009/S1185; FA2009/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).

The location at which services related to post production are consumed is determined independently from that at which earlier film-making activities took place.

Post-production is essentially that stage of film making where the output of the previous stage of development, pre-production and principal photography are assembled, further elements are added and the film as an entirety is made into a version which is capable of being shown to an audience.

If we consider the services of a film editor as comprising the transformation of raw footage into a structured and logical sequence, then linking the place of consumption to the location of principal photography would produce results which are at odds with the policy objectives. It would, for example, fail to incentivise the use of a UK editing company working on a culturally British film where all or part of the principal photography took place outside the UK.

The FPC may need to establish from its suppliers the extent to which post production services are being performed in order to establish the amount of UK core expenditure that attracts FTR.

Computer-generated imagery (CGI)

The same argument holds in the case of CGI services, where there is an even stronger case against making the link with the location of principal photography. Because CGI is, in effect, the creation of new images, akin to the creation of images of actors during principal photography, rather than the processing of pre-existing material. This is explicitly acknowledged by FA06 which presents CGI as a primary rather than a secondary component of film making, equivalent to principal photography.

Where the imagery is created in the UK the CGI services should be viewed as being used or consumed by the FPC in the UK (in the same way that principal photography services are used or consumed in the UK when principal photography is located in the UK). I.e. where an FPC incurs expenditure on CGI services which are carried out in the UK, it will use or consume those services in the UK.

The same approach will apply to other post production services, such as editing and sound synchronisation.

Example 1

An FPC engages a UK CGI company to create images and scene backdrops.

The CGI company has two branches, one in the UK and one overseas, and the work is evenly split between the two locations. The expenditure on that proportion of CGI which takes place in the UK is treated as UK expenditure on the grounds that that is where the FPC uses or consumes those services. This is not affected by the location where principal photography on the film takes place.

The non-UK CGI expenditure is not treated as UK expenditure because the service is used or consumed by the FPC outside the UK.

Example 2

An FPC commissions a French composer, resident in New York, to write music for a film which is being shot largely in the UK. The music is recorded by an orchestra in London and then incorporated into the film during post-production in the United States.

The expenditure on recording the music is analogous to that on principal photography with the score playing the role of the script. It is therefore used or consumed in the UK.

The expenditure on post-production, when the music is incorporated into the film, takes place in the United States so this is not UK expenditure.

The expenditure on the score itself is UK expenditure to the extent that it is attributable to the recording. Here the analogy with the script breaks down, as while the script would be heavily used in post production, the score is less used then - it has already been largely “consumed” in making the recording. As this was done in the UK, all or most of the costs of the score is UK expenditure.