It looks like 2013 is off to a good start for the creative industries in a year in which demand for high quality creative output continues to grow.
The Government has published its proposed legislation for new corporation tax reliefs for British high-end television production (namely dramas and documentaries), animations and video games.
I asked my colleague Mailin Bala to look at the draft legislation to see what it delivers and what impact it has on co-productions.
OK, so, what does it amount to?
In short, qualifying companies will be able to claim an additional deduction of 100% of UK qualifying production expenditure in computing their taxable profits. Where that deduction then results in a loss, companies will be able to surrender those losses for a payable tax credit amounting to 25% of qualifying production expenditure.
To qualify for the new relief, the following criteria have to be met:
there must be a high end TV programme (meaning the average cost of expenditure per slot
hour must be at least £1m), animation or video game being produced which is intended for broadcast/commercial release;
- the content must be certified by the Secretary of State as being British; and at least 25% of the core production expenditure incurred by the company must relate to expenditure on goods or services used or consumed in the UK.
See here for HRMC's detailed description of each of the reliefs (including the conditions to be applied) and the proposed draft legislation. See also this document for the
Government’s response to the consultation on the reliefs.
What constitutes ‘British’?
That will be determined by scoring a minimum 16 points out of a possible 31. Points will be awarded for using British locations, language, use of UK key staff and promoting British culture. In some cases, it will be sufficient for the content to include EU elements, rather than purely British ones.
When do the reliefs come into play?
All being well, the new reliefs will apply to qualifying expenditure incurred from 1st April 2013. This
is subject to the government obtaining State aid approval of the ‘British’ test from the European Commission.
Who can claim the relief?
UK companies that are responsible for production activities and for undertaking negotiations and contracting for rights, goods and services in respect of the content.
What about co-productions?
Only one TV production company/games developer can claim the relief per relevant content. If
there is more than one company that meets the qualifying criteria, then it is the company that is most directly engaged in the activities that can claim the relief. However, a company can elect not to be regarded as a television production company/games developer by recording its election in the company's return for an accounting period.
The election will apply to all content that commence principal photography/ or begins production in that, or any subsequent, accounting period, until the election is withdrawn.
There is however, an additional benefit for TV production, in that a co-producer can claim the
- the programme is made under a relevant international co-production treaty (though not
through a partnership); and
- the co-producer makes an effective creative, technical and artistic contribution to the programme.
In an attempt to avoid over complication and abuse of the relief, the Government has purposely not legislated for other forms of co-production to be eligible for the relief.
This may in itself appear to stymie co-productions, such as cross-industry productions where for example rights holders engage production houses to conduct all or some of their production activity.
Yet, rather helpfully, the government has acknowledged that companies wishing to access the
relief that are undertaking genuine co-productions, may wish to structure their business in such a way in order to access the relief.
Whilst setting clearer boundaries would have been preferable, this appears to be an invitation for other genuine co-productions to set up special purpose vehicles to avail themselves of the
relief; potentially benefitting additional sectors in the creative industries.
Have a good week.