The UK Government has signaled its intent to do awaywith Section 42 as well as Section 48 in a set of long-awaited proposals fornew tax incentives for the British film industry. In future, low- andhigh-budget films would be be dealt with under a "single coherent regime".

At the same time, the Department for Culture, Mediaand Sport has launched a consultation on a proposed "cultural test"to ensure that films which qualify for the new tax relief "are genuinelyculturally British." The aim behind the "test" is, it isassumed, to root out minority co-productions which bring little value to the UKindustry.

The key new features of the proposed relief are that they:

- are provided directly to film-makers themselves;
- apply to films that are certified as culturally British films;
- are provided on qualifying UK production expenditure where a minimum UK spendthreshold of up to 40% has been met, up to a maximum of 80% of qualifyingproduction expenditure;
- allow a payable tax credit at a level of 30% and provide an enhanceddeduction of 50% for films that cost £20 million or less; and
- allow a payable credit at a level of 25% and provide an enhanced deduction of25% for other qualifying films.

The new relief will be introduced with effect from 1 April 2006

The initial reaction from industry figures is that the measures are "moregenerous" than originally anticipated when the Government first announcedits plans for a 20% tax credit. Bridging arrangements were also welcomed. Filmswhich have started production by 1 April 2006 should continue to be able toaccess the current reliefs provided the film is completed before 1 January 2007and, where relief is available for acquisition expenditure, provided the filmis acquired before 1 October 2007.

"The consultation proposals represent a totally new approach to tax relieffor film," commented UK Film Council chief-exec John Woodward. "Thenew tax credit system will continue to provide a subsidy for British films butalso offers the potential to help build British film businesses by encouraginginvestment in slates of films rather than single projects."

"The precise value of the new relief will be determined by the way inwhich filmmakers choose to use it," Woodward continued. "Where theycontinue to structure their films in the same way as they do now, the level ofbenefit will broadly be the same. However, the new reliefs will deliver abigger benefit when the income from a film is reinvested against future filmproduction. "

Pinewood Shepperton's Chief Executive, Ivan Dunleavy, also welcomed the newproposals.

"The proposed DCMS cultural criteria and the new Treasury tax creditshould provide a clearer and simpler system of support for producers of UKfilms and eliminate value leakage, a feature of current schemes," Dunleavycommented. "We welcome the Government's ongoing commitment to support UK-producedfilms and allow the UK to grow as a centre of European film excellence."

Dunleavy drew particular attention to the 'ratcheting up' provision in thepropoals: "The more qualifying films you make, the higher the tax credit.I, and many in the industry, believe this ratchet will attract additionalinvestment in filmmaking in the UK and is entirely consistent with theGovernment's stated aim of sustainability."

The closing dates for responses to both consultations is 21 October 2005.