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HMRC internal manual

Film Production Company Manual

Avoidance and disclosure: avoidance - inflation of claims


The film tax regime introduced by FA06 includes a general anti-avoidance provision designed to prevent a film production company (FPC) inflating the amount of Film Tax Relief (FTR) to which it is entitled.

Its effect is to exclude any transaction undertaken with the aim of inflating the relief.

Where a transaction is attributable to arrangements entered into wholly or mainly with a purpose of gaining FTR that would not otherwise be available, or of increasing the amount of additional deduction or payable credit beyond what was otherwise available, then the transaction can be disregarded in determining the amount of any additional deduction or payable credit.


An FPC hires an actor for £1m, but draws up a contract in which the total fee payable is set at £1.5m. The actor agrees to reinvest £0.5m in the film in the form of a non-recourse loan to the FPC.

The FPC has no obligation to repay the loan from the actor and therefore this aspect of the contract has no commercial basis. Instead, the whole purpose of that part of the transaction was to gain an amount of FTR which would not otherwise be available. Therefore, £0.5m of the contracted fee should be disregarded when calculating the amount of FTR to which the FPC is entitled.

This provision is deliberately drawn widely, and whether it is used will depend on the intention of the FPC in entering into the transaction rather than the type of transaction itself. It is not, however, designed to affect normal commercial arrangements entered into by FPCs to obtain FTR within the intent of the legislation.

You should consult Head Office in cases where you consider that the use of this provision might be warranted or where you suspect that you have identified artificial arrangements which have been entered into with the whole or main purpose of increasing the amount of FTR available.