How does the UK's new tax credit affect the post sector' Geoffrey Macnab reports.

It is understandable the Hollywood studios looked askance at the UK last year, as rules governing Gaap funds were changed and those governing the new UK tax credit were altered to conform with European Union (EU) criteria.

'From my contacts in the US, there was a bit of uncertainty,' says Cinesite's head of production Courtney Vanderslice of the changes to the tax credit legislation demanded by the EU. 'I think we are past that stage. We're now in a solid place.'

Under the terms of the new UK tax credit, large-budget films, costing $41m-plus (£20m-plus), can claim a credit worth 16%.

The Department for Culture Media and Sport's certification unit (operating within the UK Film Council) insists the application process for the new 'cultural test' that films must pass to qualify as British and access the credit has been made 'as simple and quick as possible'.

Post-production counts for relatively few points in the cultural test. Nonetheless, the credit is seen as crucial to underpinning the UK's post-production industry.

'The tax credit is incredibly important. If you have a huge tax credit but no infrastructure, it's worthless,' says British film commissioner Colin Brown. 'There are few English-speaking countries that don't have a relatively sophisticated tax regime.

'Where we are ahead of the game is that our incentive is relatively simple to understand, pays on time, and is of a respectable percentage. This all has to be taken in the context of the skills we have here.'

As yet, it is hard to tell how successful the tax credits are in attracting Hollywood productions. That films such as Hellboy 2: The Golden Army are doing post in London, despite shooting outside the UK, suggests Soho retains its allure.

But there are downsides. 'It's disadvantageous for movies shooting in the UK, because they will make their 80% in principal photography and there is no incentive for them to remain in the UK for post-production,' says Framestore CFC's Steve Norris. Ironically, because of an EU directive that the tax credit not be available for more than 80% of the film, post-production work might be lost to non-EU countries.

Alex Hope of Double Negative points out that, while lobbying for the tax credit, the post-production community 'presented a united front to the government' and the legislation reflected the needs of the industry. 'The great benefit of the new system is that there is real clarity and understanding on the part of the UK on how it works.'