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HMRC internal manual

Film Production Company Manual

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HM Revenue & Customs
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Commencement & Transition: Introduction

Commencement

Although it was originally intended that the new rules in FA06 - and therefore Film TaxRelief (FTR) - would be implemented from 1 April 2006, FTR is a State aid, and had to beapproved first by the European Commission. Clearance was not obtained until late in 2006.The Commission then required changes to the definition of a “British film” forthe purpose of the new tax relief, which were made in December 2006 and took effect from 1January 2007. Commencement was therefore delayed to 1 January 2007.

Without further provisions, the relief as set out in FA06 therefore applies to films thatcommence principal photography on or after 1 January 2007. The previous reliefs arewithdrawn for such films, but would continue to apply for earlier films, (except that theextra relief for low budget films under F2A98/S48ITTOIA2005/S139, and ITTOIA2005/S140 onlyapplies to films that commenced principal photography before 1 April 2006 and werecompleted on or before 31 December 2006 (see FA05/S58).

It was always intended, however, to withdraw the old reliefs as speedily as possible andto bring films already in production at 1 January 2007, and uncompleted then(“overlapping” films) within the new rules. This has been done throughregulations (The Corporation Tax (Taxation of Films) (Transitional Provisions) Regulations2007) (SI2007/ 1050) made under FA06/S52. Broadly, these provide that modified versions ofthe new rules in FA06, the old rules, and of the Films Act 1985 apply to overlapping films

Two classes of overlapping films are not brought within the new rules and continue to betaxed as before;
 

  • Overlapping films that do not meet the definition of a “British film” because they neither satisfy the “cultural test” introduced in December 2006 nor qualify under a co-production treaty. This is determined by whether or not the Secretary of State has refused to issue a certificate that the film is British according to either of these criteria.
  • Overlapping films not intended, at the time principal photography commences, for theatrical release. If the intention changes after principal photography commences, this does not affect which rules the film is taxed under. So if, for example, when principal photography commences, a film is intended to be shown on TV, it is within the old rules. Even if this changes and the film becomes intended for theatrical release, it is still taxed under the old rules (and may then be able to claim s42 relief).