Film Industry: Tax relief to entice movie-makers

The British film industry heaved a collective sigh of relief when new and long-awaited tax reliefs proved more generous than many had feared.

A headline figure of a 16 per cent net tax relief for big-budget movies makes Britain arguably more attractive as a film-making centre than many of its foreign rivals and should be enough to lure back blockbusters such as James Bond which moved overseas during the damaging period of uncertainty.

With a new deal for smaller-budget films providing a tax credit of at least 20 per cent of production costs, there was confidence last night that the industry could get back on track.

Bodies led by the UK Film Council, the Producers Alliance for Cinema and Television (Pact) and Film London welcomed the incentives themselves and the transitional arrangements for implementing them.

John Woodward, the chief executive officer of the UK Film Council, said the announcement was the best news the British film industry had received for five years. "It marks a new era for the future growth of our industry, which operates in a highly competitive global marketplace," he said.

"It's good news for the production of culturally rich British films that promote Britain around the world. It's also good news for jobs and the economy as we will once again be able to attract big budget films to the shores of the UK.

"The new tax regime will support everything from big-budget films like Harry Potter to lower-budget British comedies and thrillers, as well as new films from auteur directors such as Ken Loach, Michael Winterbottom and Mike Leigh."

The new tax credit levels apply to the amount of UK spend, in line with the deals offered by other countries. They are supported by a more flexible system allowing producers to phase credits, taking them either at the start of production, or later when they are receiving profits.

In a decision which should prevent chaos similar to that caused by the overnight closure of an abused tax loophole last year, which put British-made movies such as The Libertine, starring Johnny Depp and Samantha Morton, in jeopardy, the new credit regime will be introduced on 1 April next year.

It will apply to films which start filming on or after that date and to films which start before then but which are not completed by 1 January 2007.

The Government announced two years ago its intention to end the existing Section 42 and Section 48 reliefs, partly because of abuses. But negotiations proved fraught. Indications this summer suggested the Treasury was unwilling to put forward a deal big enough to attract the major productions which most industry insiders regard as a vital part of a thriving film business.

John Graydon, head of the film unit at Tenon, an accountancy firm, said: "The previous proposals [from the Treasury] meant the UK wasn't even going to be in the game and production would go to Hungary, South African, Canada and Australia."

But while there were still details to be ironed out, he said the results of the consultation were undisputed good news.

Sources said Treasury tax experts were originally unconvinced of the need or wisdom of the dedicated relief and that it was the Chancellor himself, with the Paymaster General, Dawn Primarolo, who convinced them of film's importance.

James Purnell, the Film minister, said the Government had delivered on its pledge to supportBritish film production with measures that offered "an excellent platform to create a stable and sustainable film industry".

But the support was not limited to tax, he said. A new "cultural test" of what constitutes a British film is being introduced which will take into account the personnel involved as well as where it is filmed and the budget. Adrian Wootton, chief executive of Film London, welcomed the new cultural test as helping to simplify the implementation of the tax relief.