The Economic Impact of the UK Film Industry - BFI - British Film ...

11. The impact of Film Tax Relief
Economic Contribution of the UK Film Industry
July 2007
The value of the film industry to the UK culturally and economically was recognised by the government
when it reviewed the Film Tax Relief in 2006. This led to the replacement of the previous tax incentives
for film (Section 42 and Section 48) that used a sale and leaseback mechanism, which had come to be
used by some individuals as a mechanism for tax avoidance.
The new tax incentive is based on an enhanced deduction from taxable income for film production
companies that can be converted into a payable tax credit. For UK films with production budgets up to
£20 million, the value of the tax relief increases to a maximum of 20% of production costs where 80% or
more of the budget is spent in the UK. For films with production budgets of £20 million or more, the
maximum value of the tax credit is 16%. To qualify for the tax credit, at least 25% of qualifying
expenditure must be spent in the UK. In addition, films must pass a ‘cultural test’ administered by the
Department for Culture, Media and Sport (DCMS), which considers the nature of the film’s story, setting,
characters and contribution to cultural diversity (see Section 3.2 for more details).
The new film tax relief came into force on 1 January 2007. This chapter considers the importance of the
tax credit to the sustainability of the core UK film industry and to achieving the economic and cultural
benefits set out in this report.
Key Points
• The film tax credit is vital to sustaining the competitiveness of the core UK film industry. With
that tax incentive in place, we expect the UK to attract £800 million a year of inward investment
productions by 2010, supporting a continuation of the long-term trend expansion of the core UK
film industry and its contribution to UK plc.
• The film tax credit is important in putting the UK film industry on a level playing field with its
competitors, enabling it to generate the economic and cultural benefits highlighted in this report.
• Without the film tax credit, we estimate that the core UK film industry would be around 75%
smaller, at a cost of around £1.3 billion of lost GDP a year and about £350 million lower
Exchequer revenues. That compares with an estimated cost of the new film tax credit of around
£120 million a year.
11.1. The rationale for the Film Tax Relief
In reviewing the Film Tax Relief, the Treasury considered carefully the rationale for particular support for
the film industry. It noted two main justifications:
• The cultural benefits of UK film – as highlighted in Chapter 8, the Treasury considers that:
“Cinematic film provides a universal and readily accessible medium for the expression and
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