Gabelle Tax Analysis: Consultation on creative sector tax reliefs
On 18 June the Treasury published a consultation document proposing new corporation tax reliefs for the animation, high-end television and video games industries. These would apply from 1 April 2013, subject to state aid approval.
The proposal is that the new relief will be modelled on the film tax relief, which provides an additional deduction based on the lower of UK core expenditure and 80% of total core expenditure.
Looking specifically at animation the following criteria will need to be met:
- There must be an ‘animated’ programme being produced;
- The programme must be intended for broadcast;
- The programme must be certified as a cultural product by satisfying a cultural test; and
- At least 25 per cent of the core expenditure incurred on the animation by the production company must relate to expenditure on goods or services that are used or consumed in the UK.
Animation for news, advertising, game shows, and similar purposes would be excluded. Where a production has mixed content it will be treated as animation if 75% of the production costs are for animation.
The company claiming the relief must be directly involved in the production and must be a company registered in the UK at Companies House. Co-productions will be considered at the consultation stage, and there is no indication at present as to how these will be dealt with.
The definition of core expenditure is likely to be similar to the definition for film tax relief, so will include direct production costs, excluding costs of financing, advertising and any costs covered by grants and other public subsidies.
Relief will not be available for speculative expenditure that does not result in a project going into production.
Relief will be available on the basis that each production will be treated as a separate trade, which is how the current film tax relief operates.
There will also be a cultural test, based on a points system, in order that a production can make use of the relief.
High-end television tax relief will be very similar to the film tax relief, and is being introduced to encourage more productions to be made in the UK. Where the company makes a loss the company would be entitled to surrender the loss for a payable tax credit.
The relief is aimed at drama productions, including comedy programmes. It will not include advertising, discussion programmes, news or current affairs, quiz shows, variety shows, or similar entertainment.
There would be a threshold of £1m of direct production costs per hour of running time, with a minimum running time of 30 minutes.
It is proposed that similar relief would be available for the productions of video games.
The aim of this relief is to make UK the technology centre of Europe, supporting technological innovation and ensuring that companies working in creative industries contribute to UK economic growth and to British culture.