The UK government listens to the concerns of the animation industry in its new tax credit.

Following several months of consultations with the television industry, the Government will introduce a tax credit for animation programmes and high end television in the Budget in April 2013.

This is a welcome boost to the animation industry, as companies such as Disney had previously said that they were unlikely to return to the UK unless tax breaks were introduced, pointing out that they had been working in Ireland on a number of productions where tax credits were available.  Eric Shain, VP of Disney ABC Networks said “That money could have been directed towards the UK if there was an available tax credit to level the playing field”.  Aardman Animations had said they may have to move more productions abroad and had already been shooting in Canada and Singapore, which had become more cost effective options. 

The Government has now published draft legislation and to the relief of the animation industry, it confirms that, for programmes that contain a mixture of animated and non-animated content, the tax credit may be claimed provided that at least 51% of the cost of the production relates to animation costs.  The industry had lobbied for this following the Government’s initial proposal that the figure should be 75%.

The tax credit will work in similar way to the existing film tax credit, and providing a tax credit of up to 20% of the programme’s eligible UK spend.  Programmes will need to pass a cultural test scoring at least 16 out of a possible 31 points.  The cultural test will contain some useful provisions for animation, for example, the Government has helpfully allowed the programme to score some points if it is set in an undetermined location (rather than it having to be set in the UK).

The Government has listened to the concerns of the animation industry and has agreed that early stage costs, including pilots, that are integral to the production process will be eligible for the tax credit. 

The rules also make it clear that the tax credit only applies to programmes which are intended for broadcast to the general public (and that this condition must be met at the point the production activities begin), which clearly shows that the Government is trying to avoid any abuses of the tax credit. It expressly excludes animation in advertisements, current affairs programming, competitions and training programmes.

The Government has recognised that encouraging animation production in the UK should provide an economic boost as well as providing increased employment opportunities to the UK’s highly regarded production community.

In respect of high end television the draft rules confirm that the relief will apply to high end television productions with a budget of over one million pounds per slot hour. The tax relief not only applies to high end drama but also to documentaries, an area in which the UK has an increasingly high profile, and should encourage the use of “doc-u-drama” techniques and CGI, to illustrate and bring subject matter to life.

The availability of the tax relief will make producers (particularly of high end drama) look at their budgets, and where their production costs are less than the £1 million mark, they may consider casting more expensive and more well-known) talent in order to push the production budget up. This might have the “win/win” effect of not only enabling the producer to claim tax relief, but also to cast more internationally well-known actors, which may itself provide greater opportunities for presales and international sales.

The draft rules are still subject to a period of consultation and to EC state aid approval before final legislation is agreed in April 2013. 

Jonathan Berger is a Partner in the Film and Television Group at London law firm Harbottle & Lewis.