The UK Film Council, together with representatives from BSAC and PACT, met yesterday with Inland Revenue officials and made the case for transitional arrangements following the changes to the rules covering losses through partnerships announced on 10 February.

The Council proposed to the Revenue that transitional relief should be available to a film which is intended to be British qualifying, where all the financing partners are in place and where cash expenditure had already been committed by 10 February 2004.

The Council is now working with BSAC and PACT to supply the Inland Revenue with a schedule of films set to go into production this year which will be affected by this week's announcement.

The UK Film Council also stressed the need for an urgent resolution to the current uncertainty facing the British film industry.

While the government's actions will have the greatest impact on financing schemes such as Ingenious Media's Inside Track fund and Grosvenor Park's First Choice, the ruling will not affect the Section 48 tax break as offered by Matrix and more recently Prescience Film Finance.

Meanwhile, Julia Blackman, a partner in UK film financing and production outfit Scion Films, told about its alternative approach to film investment. "Films like Cold Mountain and Girl With A Pearl Earring were made using the type of partnership schemes that the Government is now seeking to stop.

"Schemes underpinned in this way have become popular and we estimate that there will be at least 30 or so British films at pre-production stage that will be affected by the Government's announcement.

"Scion productions and co-productions are unaffected because we have been developing and using different structures in anticipation of a clampdown on any scheme offering an absolute tax saving."

Scion, which has been involved in the production and finance of over 50 films, including Bend It Like Beckham, Enigma and Dog Soldiers, has developed new forms of film investment product in anticipation of a Government reaction to aggressive schemes.

Under one of these products, investors purchase shares in two separate partnerships, which give them the right to recoup part of their investment, to a significant share in net profits and to tax relief (under legislation brought in by the Government to encourage investment in film).

"Investors can treat the investment in each partnership as separate which enables greater flexibility in using tax losses," said Blackman.

The first film to be financed in this way is Phantom Of The Opera, currently in post-production at Pinewood Studios, which Scion is co-producing with Andrew Lloyd Webber's Really Useful Group.

Blackman believes that the tax efficient design of the new partnership will set a new gold standard for film investment.

She said: "The Government's move will boost the use of vehicles such as ours for financing film. The approach we are taking is low risk in terms of Inland Revenue challenges, and its complexity is justified by the additional benefits it gives to investors. We have already taken vast amount of calls in the last 24 hours from producers and Investors Advisers affected by the Government's announcement, looking for alternative financing packages.

"However, we should advise that the approach we have taken with Phantom is really only suitable for productions where the film is particularly likely to make strong financial returns."

Scion is about to launch a "prints and advertising" fund for investors, which is also structured so that it will not be caught by the new rules