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Last Updated: Monday, 5 March 2007, 16:22 GMT
Cash warning for UK film industry
Simon Pegg
Simon Pegg's Shaun of the Dead was chiefly funded in the UK
Film production in the UK could suffer because new tax rules are scaring off investors, industry figures claim.

The government has effectively closed a tax loophole that allowed the rich to invest in high-risk ventures and use any losses to reduce their tax bill.

A remake of the St Trinian's film could even be scrapped because of the change, according to its financiers.

HM Revenue and Customs said it had "not targeted the film industry" and supported films with other incentives.

"This is not about film, it's about tax avoidance," said a spokeswoman for the UK Film Council. "It's part of an ongoing crackdown by the government."

Films threatened

Duncan Reid, head of investment at Ingenious Media - one of the biggest players in behind-the-scenes financing in the UK - said some investors would "definitely pull out" of the film industry.

His company has raised money for films such as X-Men: The Last Stand and Garfield 2, but he says the new rules will mean a "large shrinkage" in available funds.

"The advantages of being able to write off losses against tax were really important for attracting investors," he said.

Halle Berry in X-Men: The Last Stand
Hollywood films like X-Men also receive UK funding
"Film production activity in the UK will fall dramatically."

But Patrick Stevens, a tax partner at accountants Ernst and Young, said he would be "quite surprised if the changes make a big difference".

"It used to be that lots of money went into films in this sort of way," he says. "But the government came along a couple of years ago and said: 'We're not going to let you do this any more.'

"They introduced a tax credit arrangement and, to the best of my knowledge, most film producers said the new regime was fairly reasonable.

"This mopping up is to ensure that the system works as intended."

'Fall apart'

However, some experts were disappointed that the new regime was introduced without notice.

"We've got funding that we won't be able to use," said Paul Brett of Prescience Film Finance, which raised money for Terry Gilliam's Tideland.

"A lot of UK films that were going to shoot over the next few weeks are going to fall apart," he told trade paper Screen Daily.

"It would surely have been better to have a consultation and transitional period," says John Whiting, a tax partner at accountants PricewaterhouseCoopers.

"The chopping and changing means less confidence and that affects stability in the film industry."

But Anne Sheehan, executive producer at Visible Films, argues that the industry only faces "transitional problems".

"The government's new tax credit scheme for films only came into force this January, so it's going to take a little while for people start raising the money," she says.

Ms Sheehan's company, which has bankrolled films such as Stormbreaker and Becoming Jane, already offers investment opportunities under the tax credit scheme, which gives tax breaks to film-makers who spend at least 25% of their budget in the UK.

The UK film industry recovered from a similar funding crisis in 2004 when the government closed a related tax loophole.

Around 40 films were affected, including The Libertine - with Johnny Depp - which hurriedly found new cash to take its film shoot to the Isle of Man.

Another film threatened by the changes, The Constant Gardener, went on to win an Oscar for actress Rachel Weisz.

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01 Jul 04 |  Entertainment

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