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Last Updated: Monday, 23 February, 2004, 14:08 GMT
Q&A: UK film tax crisis
A number of movies being filmed in the UK could be scrapped after the government closed a tax loophole. BBC News Online explains.

Jude Law
Jude Law is among the actors whose films have been affected
What is this tax loophole?

Complicated. The "sideways loss relief" is intended to help people who risk their own money by running businesses in partnership with others - but end up making a genuine loss. They can then claim tax relief to soften the blow.

What has the film industry got to do with this?

Some investors are thought to put money into films without doing any work, and pull out of the partnership before the film reaches cinemas and makes money. They know they are going to make a loss, and take advantage of this loophole by claiming tax relief on their sum. So they end up paying less tax in total than they otherwise would.

How many films are affected?

The UK Film Council and other industry bodies presented a list of 40 films that are "directly affected" - which have already started shooting or are committed to shooting in the UK. They include The Libertine, starring Johnny Depp and John Malkovich, and Tulip Fever, starring Jude Law and Keira Knightley. But not all films take advantage of this loophole.

What do producers want now?

The film industry has asked the Inland Revenue to keep the loophole open for these films that have already started work in the UK.

What will happen if this is not granted?

These films' budgets will be thrown into disarray and many will not be able to afford the increased tax payments. Many will try to get funding from other sources, such as other European countries. Some could move productions to a cheaper country, such as in Eastern Europe - but many will simply not be able to absorb the costs of delays and relocation and be abandoned.

How will the film industry cope in the long term?

There have been warnings that this could be "a disaster" for the film industry and that Britain would become "a no-go area for film-makers". Spending by Hollywood producers in the UK rose 85% to 409m in 2003 - but that is likely to slump again as a result of these changes. That will mean fewer films being made in the UK, a smaller British industry and fewer jobs for those involved in making films.

Could it affect blockbusters like Harry Potter?

Many producers did not use this loophole, and a spokeswoman for Warner Bros, which makes Harry Potter films, said none of their films were affected.

What about other tax breaks for films?

There are still other tax reliefs, known as Sections 42 and 48, available to film-makers. Section 48 helps homegrown films with budgets under 15m, such as Bend it Like Beckham and 28 Days Later. It is due to expire in June 2005, and although Chancellor Gordon Brown has pledged to support the industry, he has not given details of a replacement. Section 42 encourages Hollywood investment and is not due to expire.

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