Government outlines tax break plans for British films

The Government has tried to end the uncertainty over tax breaks that has affected the British film industry over the past year by publishing details of the biggest overhaul of the system in more than a decade.

One single tax regime will cover big budget movies and smaller films but with more generous levels of benefit for British films that are in need of greater support, the Treasury said.

And by targeting relief on the proportion of a film's budget actually spent in the UK, the Government intends to encourage more production to take place on British soil. In the past, relief could be claimed on the entire budget even if much of it went on locations overseas.

At the same time, the Department for Culture, Media and Sport is to create a more flexible test of what constitutes a British film - and therefore what qualifies for UK tax breaks.

Instead of Britishness being decided by what percentage of the budget is spent in the UK, a more sophisticated assessment of cultural content will include the nationality of the crew, the actual subject matter of the film and whether UK film studios and production facilities are used.

James Purnell, the Film minister, said yesterday: "This is the biggest overhaul of film tax relief since 1992. We recognise the uncertainty that has been difficult since the changes were announced but we would ask people to recognise that we've had to find a balance between protecting the public purse and supporting the film industry.

"The truth is there was really massive tax avoidance and the [old] relief was badly targeted. But we are very passionate about film and Gordon Brown [the Chancellor] and Dawn Primarolo [the Paymaster General] were personally involved in delivering these new tax breaks."

The tax credit for films that cost £20m or less, against a £15m threshold at present, will be 30 per cent. It will be possible to claim an extra 50 per cent of the total cost of the film against the corporation tax liability if it makes a profit.

Bigger budget films will get credit at a level of 25 per cent, with the capacity to claim 25 per cent of the total cost against the corporation tax liability.

Mr Purnell said that he was confident that the system could be introduced from 1 April.

Film-makers have been desperate for resolution and claimed movies were being lost overseas because of the uncertainty.

Ivan Dunleavy, the chief executive of Pinewood Shepperton studios, said the new tax credit should provide a clearer and simpler system of support.

He particularly welcomed a "ratcheting up" provision, whereby the more qualifying films you make, the higher the tax credit.

"I, and many in the industry, believe this ratchet will attract additional investment in film making in the UK and is entirely consistent with the Government's stated aim of sustainability," he said.