The UK film industry is largely cheering yesterday's announcement about new film tax laws, but seeking further clarity about aspects of the plans such as co-production rules and the transition period to the new system.
Experts say they are glad the percentage of benefit was higher than expected (net 20% for low-budget films and 16% for higher-budget films) although there will be more restrictions - the new tax credit will be based only on UK spend, not a film's entire budget as under the current rules, and only if it passes the new Cultural Test.
To avoid any rocky transition period or production hiatus, more details are needed on the new film tax credit, including the exact definition of UK spend. For the Cultural Test, producers are seeking more guidelines to help them through the points-based test, as well as elaboration about how co-productions will work and how documentaries and animated films will qualify.
"On the whole I think it's fantastic news. We've got a government that's supportive of film in this country," said producer Andrew Eaton of Revolution Films. "It's better than everybody hoped it was going to be. Six months ago a lot of people were gloomy about the prospects, so this is a huge relief."
Eaton notes that there could be some issues that arise with the transition period, that the tax credit will allow Revolution to plan ahead with more certainty on future projects. "It'll help our ability to make plans for next year and figure in that 20% benefit," he says. Revolution's recent projects, including Michael Winterbottom's A Cock and Bull Story, were made with sale-and-leaseback (at a 15% rate of relief) so Eaton understandably sees the new credit as an improvement.
Another producer praising the goverment move was Andy Paterson of Archer Street, who called the announcement "extremely good news" and said that consultation period on the new tax laws had been run extremely well. "The consultation was a model of its kind, the industry spoke with one voice and the government went to extraordinary measures to understand how this strange business actually works, and then modified their proposals in line with industry expectations," says Paterson, who has worked on films including Girl with a Pearl Earring and Hilary and Jackie.
"Generally it's very good news," said John Graydon, head of the film unit at accounting firm Tenon Media, which has worked on films including Cold Mountain and Bridget Jones's Diary. "I think on the face of what's been announced we just need more clarity."
Producers say that it's good news that co-productions will be welcomed under the new tax credit, although that's an area that could also be elaborated upon by the Government. As is how the law will work with separate co-production treaties the DCMS has signed or will sign in the future with other countries.
Still, even with co-productions cleared under the new scheme, that doesn't mean the UK will continue to be quite as attractive as a co-production hub because the new tax credit will apply only to a UK spend, not the entire budget. To that end, the government should be successful in clamping down on "tax tourism" by foreign producers.
"It's reasonably clear that there will be fewer co-productions because the old incentive was based on the entire budget, so incentive based only on UK spend will change the dynamic and the behavioural pattern of producers," Graydon said. The upside for UK infrastructure is that "it's now an incentive to do more in the UK."
Adam Davies, a film financing consultant and author of The UK Film Finance Handbook, adds: "Producers can get the net 20% up front, which is better [than the existing tax break], but to do that they have to spend 100% in the UK, and the UK is expensive so I'm not sure if will people will be willing to spend all of their budget here."
The new credit going directly to production companies instead of middlemen will likely change the UK film finance landscape. "Of the middlemen, one type that will obviously hang around are the ones that will bankroll the new tax credit," Davies says. "The middlemen putting partnerships together for sale and leaseback will go away, but there will still be middlemen putting together partnerships that want to invest in film."
Ivan Dunleavy, CEO of Pinewood Shepperton, said, "The proposals outlined by the Chancellor should bring greater clarity and certainty which the film industry has been seeking. We also welcome the additional benefits that will now flow directly to film companies and remove opportunities to exploit the previous provisions."
Experts noted that the cultural points test would be easier to pass than other higher-percentage labour and spend tests. One industry consultant said the cultural test was so easy to pass that it was virtually a "red herring" and would mostly pose a worry to producers only in terms of added paperwork.
The other immediate concern is the transition period - Section 48 expires with shoots that start after March 31, 2006, and the new law will start with productions shooting from April 1, 2006. Industry watchers say that they hope that the Treasury and DCMS will elaborate quickly on yesterday's announcements so that films planned for April and beyond won't be left in limbo. "It is a concern," Graydon of Tenon Media says. "I think a lot will depend on how quickly this announcement can become firmer - when it passes the EU state aid provisions and so forth -- so that people will know the money is going to happen with certainty. I think those issues need to be resolved as soon as possible."