US studios including Walt Disney, Miramax and Universalhave been stopped from accessing an estimated £400 million in UKtax-based funding to underwrite their p&a costs through another loophole intax regulations.

Hardon the heels of closing down production funds on February 10, the InlandRevenue today extended its tightening up of tax rules to include a fresh cropof distribution schemes using generally accepted accountancy principles (GAAP).While last month's major casualties, Grosvenor Park's First Choiceand Ingenious Media's Inside Track, were using GAAP rules to invest inproductions such as The Libertine and Tulip Fever, the latest entrantswere using GAAP rules to underwrite distributions costs on US studio titles inthe UK and overseas.

Fundscurrently being assembled include Timeless Releasing, a £200m dealbetween Walt Disney and Future Films that also included Miramax titles, whileScion's Globe scheme was bankrolling Universal releases. Ingenious wasunderstood to be putting together another p&a fund with MGM. Between them,the funds aimed to raise £400 million, Timeless being the biggest.

WarnerBros' GAAP p&a fund with Scotts Atlantic was caught out last month inthe first clamp down, but other schemes maintained they were safe because theydid not allow the studios to buy back their films - which wouldeffectively allow investors to exit early and possibly avoid paying tax.

Butthe measure s announced today clamps down on all schemes that fall outside theUK's film-specific support under Section 48 and Section 42, which areleft untouched by the latest move.

"The Chancellorsent a strong signal in his budget speech that the government is determined totackle tax avoidance," said paymaster general Dawn Primarolo. "Theaction announced today protects the Exchequer against a large tax loss andreinforces our stance that tax relief for losses should support genuinerisk-taking enterprise."

In a statement, theInland Revenue said that it was bringing forward legislation, effective fromtoday, to tackle schemes that seek to obtain immediate loss relief and therebyoffer investors a guaranteed income. The new rules will apply only topartnerships who trade in the exploitation of films.

The Revenue gave anexample of an offending scheme which starts by acquiring a license to print andadvertise a film. It said schemes claimed a loss against the entire cost,although investors only put in 20% of their own money and borrow the other 80%.Under the old rules, partners can claim this entire amount immediately, withthe tax repayment at 40% more than paying back the initial 20% cash invested.

"The schemethen generates a guaranteed income to pay off the borrowed money and intereston the partner's loan over a long period," said the Revenue."Although tax will be payable on some of the later income stream, thatincome is loaded towards later years so that the tax paid is very heavilydeferred - but the partner has had the benefit of a substantial repayment oftax up front."

One grey area whichmay allow some schemes to survive is that the new rules will only affectpartners "who did not spend a significant amount of time working in thetrade when the losses arose." Some schemes maintain they are active inthe film's exploitation, even if their involvement is nominal.

Thep&a schemes have attracted fierce criticism from many in the UK filmindustry for using tax funds to underwrite US studio costs while having littlebenefit for the British film industry."It is worse than having no benefit," said one producer."They hurt the industry as they take up investment that might otherwisehave gone elsewhere."

InTimeless' case, one source said that less than 50% of the films would beBritish. Proposed titles are thought to include Disney's end-of-year tentpole KingArthurwith UK stars Clive Owen, Keira Knightley and Ray Winstone as well as filmsfrom Disney subsidiary Miramax such as Quentin Tarantino's Kill Bill: Vol 2, and Zhang Yimou's Hero.

Scion, which had aimed to raise £100m for its fund with Universal, said that the majority of the cash it had raised was now going across to its conventional schemes under Section 48 and 42. "Money is pouring across," said co-founder Julia Blackman. "It is disappointing but at least there is clarity now and that is what the market needs."

The clamp down comesas the government is said to be considering whether to allow Ingenious'Inside Track to continue business despite being caught in the February 10freeze. Sources suggested that the scheme, the biggest out of the GAAPproduction schemes, represents a genuine risk for investors. However, even if thegovernment has a change of heart, it is thought that Inside Track would not beallowed to be compatible with new 20% tax support.