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Last Updated: Wednesday, 17 March, 2004, 16:38 GMT
Film-makers handed tax benefits
Jude Law
A Jude Law film was a casualty of recent changes
The government is helping UK film-makers fund their movies under new tax rules announced by Gordon Brown.

The chancellor announced a system of tax relief credits to be paid directly to film-makers, providing finance for up to 20% of production costs.

He said the scheme would end the practice of a minority of investors "abusing" the scheme for tax purposes.

The rules, for films with a budget of under 15m, follow the government's closure of a tax avoidance loophole.

The present system allows film-makers legitimately to sell their tax relief on to a third party, typically banks or film partnerships, often for less than it is worth in order to receive money to finance their films up front.

The Treasury is opposed to these third parties using the tax relief against their own income outside the film business, and is cutting out their involvement in the process.

Mr Brown also said the new relief will be set at a higher rate of 20% of production costs, compared with the previous rate of 15%.

"The decision not to make it a transferable credit will mean that the money will go straight to the film makers and not to middle men," said Film Minister Estelle Morris.

"The measure should offer the stability that is needed to further strengthen the industry," she said.

Uncertainty

The Treasury will now offer the tax credit which can be offset against profits or be surrendered for a cash lump sum.

Sir Alan Parker
The commitment to look at how the new credit might get more new British films into more cinemas is a significant step forward
Alan Parker, chair Film Council

"The Treasury will become the biggest investor in film," predicted Bob Taylor, director of the Films Group at accountants Ernst and Young.

The Treasury has also declared that any accountancy firm or company promoting investment schemes in films must register them with the Inland Revenue.

The current system will run out in 2005 and further information about the new relief will not be published until the summer.

But there are fears this could create uncertainty for future investors who will not know what the exact changes will be.

"This change will create a hole in the finance and structure of the British film industry over the next 12 months," said Daniel Taylor, managing director of Grosvenor Park Media.

Significant step

The government also wants to consider how the new relief can improve the number of British films produced actually being distributed.

Sir Alan Parker, chairman of the UK Film Council, said: "Limited distribution has traditionally prevented many people in the UK and abroad from seeing new UK films.

"The commitment to look at how the new credit might get more new British films into more cinemas is a significant step forward in tackling the key issue facing the UK film industry.

"Extending the scope of the new tax credit to distribution would provide a major boost to the UK film industry," he said.

He added: "We look forward to discussing with government how we can make that happen."




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