REV BN 15: Extension of Low Budget Film Tax Relief

Who is likely to be affected?

1. Those producing or investing in films with total production expenditure of up to £15 million which are certified as qualifying British Films under provisions in Schedule 1 of the Films Act 1985.

General description of the measure

2. This measure extends the tax relief for low budget films until 31 March 2006.

3. Low budget tax relief is currently provided in section 48 of Finance (No.2) Act 1997 and is due to expire on 1 July 2005.

Operative date

4. Legislation in the 2005 Finance Act will extend the low budget tax relief from 2 July 2005 until 31 March 2006. It will also contain a power to substitute a later date. This allows for the timetable if necessary to obtain formal State Aid clearance.

5. This extension will enable films to qualify for current tax relief where:

• the first day of principal photography is before 1 April 2006 ; and
• the film is completed before 1 January 2007

Relief for acquisition will continue to be available for films which meet these conditions and which are acquired before 1 October 2007.

Current law and proposed revisions

6. Low budget film tax relief was introduced by section 48 of Finance (No.2) Act 1997 and was originally intended to expire on 1 July 2000. It was extended by Finance Acts 1999 and 2001 and is currently due to expire on 1 July 2005.

7. The current film tax reliefs are at sections 40A to 43 Finance (No.2) Act 1992, section 48 Finance (No.2) Act 1997 and sections 99 to 101 Finance Act 2002. Without the film reliefs, expenditure on producing or buying a film would be capital expenditure, eligible for capital allowances. The film reliefs treat such expenditure as revenue expenditure and give rules as to how this expenditure can be written off.

8. The provisions in F(No.2)A 92 allow expenditure on the production or acquisition of a qualifying British film, which would otherwise be on capital account, to be treated as a revenue expense and either matched against income from the same film of written off over three years. Section 48 F(No.2)A 97 allows production or acquisition expenditure on a low budget qualifying British film to be written off immediately, rather than over three years.

Further advice

9. If you have any questions about this change, please contact Craig Mason on 020 7147 2599. Information about Budget measures is available on the Inland Revenue website Inland Revenue website.