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Last Updated: Wednesday, 16 March, 2005, 16:20 GMT
Treasury extends UK film tax aid
Gordon Brown
The new tax relief credits will be paid directly to film-makers
Chancellor Gordon Brown says he will introduce tax reliefs to benefit both low- and large-budget British films.

Draft legislation announced last year proposed new tax relief that would fund 20% of production costs for British films with budgets up to 20 million.

In his Budget speech on Wednesday, Mr Brown said the relief will be available to bigger budget British films as well.

The draft legislation was due to be introduced in July this year, but will now become effective in April 2006.

Under the new model, films with budgets of up to 20 million will be entitled to government subsidies worth up to 4 million a film.

The subsidies - which under current legislation go to the third parties who fund the films - would be paid directly to producers on completion.

Producers will receive a 50% tax waiver on their production costs if the film makes a profit and 20% of the budget if it does not.

'Double dipping'

"The Government has concluded that the current relief for large-budget films is no longer effective," said the Treasury.

It added that the structure of current legislation made it "a target for abuse" and "might contribute to industry fragility and instability".

Calendar Girls
Films with budgets at a similar level to Calendar Girls would benefit

The Treasury has been keen to close a loophole that allows film producers to claim tax relief more than once on the same production.

The practice - dubbed "double dipping" - enables producers to claim relief on both production costs and the sale and leaseback of the final film print.

Though not illegal, the practice costs the Inland Revenue an estimated 2 billion a year.

The Treasury said the new tax credits would ensure the relief "remains an effective means of delivering Government objectives for supporting a sustainable UK film industry".

However, due to concerns expressed over the scheme's practical operation, current relief for low-budget films - which typically funds 15% of production costs - will be extended "until at least 31 March 2006".

'Ongoing support'

The Treasury said the extension would allow more time for formal consultation on draft legislation and "ensure that tax reliefs for low- and large-budget film production are provided on a coherent and consistent basis".

The UK Film Council has hailed the decision to extend tax relief, saying it would give stability to those productions endangered by the July deadline.

"The Government's ongoing support for the British film industry provides certainty for film production in the short term, whilst work continues on the replacement tax credit," said chief executive officer John Woodward.

Pact, the trade organisation which represents independent film-makers, has also applauded Mr Brown's decision to extend existing relief while new legislation is drafted.

"We look forward to the consultation exercise on the new permanent tax credit and we remain hopeful it will provide the promised 20% benefit to producers," said Tim Willis, Pact's director of film.

Watch highlights of Gordon Brown's Budget speech

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