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Tax breaks for creative industries in 2013

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18th Dec 2012
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In a bid to make the UK the new “technology centre of Europe”, the government confirmed corporation tax reliefs for the creative sector in Finance Bill draft clauses. 

In addition, a taxable, above the line (ATL) research and development tax credit of 9.1% for large companies, will start from 1 April 2013.

Tax reliefs for creative industries

The creative industry reliefs will apply to animation, video-game and high-end television programme makers from 1 April 2013 to support investment in their production.

Under the new legislation, companies will be able to claim an additional deduction of 100% of UK qualifying production expenditure. Where this results in a loss, companies will be able to surrender losses for a payable tax credit  worth up to 25% of qualifying production expenditure.

Reliefs for each of the three sectors will be modelled on the existing film tax relief, which government says has been highly successful. The creative industry legislation also sets out anti-avoidance rules to stop the relief being abused, with similar rules to those designed to prevent artificial film tax relief claims.

"The animation, high-end television and video games industries make a significant economic and cultural contribution to the UK," the Finance Bill paperwork explained. "The government is introducing these targeted tax incentives with the aim of supporting strong and sustainable private-sector led growth within these industries." 

To qualify for a relief, productions will have to qualify as culturally British through a test administered by the Department of Culture Media and Sport (DCMS).

The government's consultation panel on this relief included PwC, Deloitte, the Institute of Chartered Accountants Scotland and the BBC.

The panel proposed applying the concept of separate trades within the relief, so that the profits and losses of each production within a company are calculated separately. Panel respondents stressed the need to keep accountancy requirements as straightforward as possible to minimise administrative burdens on smaller producers.

Under legislation, high-end television tax relief will apply to high-end drama, comedy and documentary productions with an expenditure of £1m or more on direct production costs.  

The legislation will also allow all direct production expenditure to be eligible for relief in line with the existing treatment under the film tax relief.

In animation, the relief applies to programmes where animation makes up 51% or more of total production costs and video games tax relief will allow all direct development expenditure incurred after the relief of a qualifying game to be eligible for the creative industry relief.

Research and development credits 

Following consultations, the government also introduced legislation to pave the way for the ATL R&D credit of 9.1% for large companies.

The legislation was uveiled in the March Budget as part of a raft of tax reliefs for the creative industry.

This will come into force from 1 April 2013 and be introduced alongside the existing super-deduction from 1 April 2016, which it will replace.

The credit will be fully payable to companies with no CT liability, something the government said would increase the UK's appeal as a location for R&D investment.

The government has said it'll also be "safeguarded from abuse" through the introduction of a PAYE/NIC cap on the payment of credit to companies with no CT liability 

However, E&Y's research and development tax partner Frank Buffone said despite the positive introduction of the credits, it's not all good news 

"The government is intending to limit the amount of payable credit to the amount of a company's PAYE/NIC liabilities, in relation to staff engaged in qualifying R&D activities in the accounting period," he said. 

"This significantly waters down the benefit of the repayable credit to companies. The excess of the credit due can only be treated as an ATL credit in the following accounting period," he added.

In addition to this, he added the R&D rate won't have the impact the UK's looking for, especially when compared to more favourable packages such as in Ireland and that HMRC would face challenges, especially the step change required to assess and agree R&D claims "in a timely basis". 

However, head of R&D and tax partner at Grant Thornton Samantha Vanags said the credit will be a "real bonanza" for companies that innovate.

"For large corporates who are making profits, it's good news because they can continue to claim for R&D costs as they have done before. For those who are making losses, it's even better news as they couldn't get the cash benefit from the government but they now can," she said. 

Vanags explained the payments would be optional until 2016 and would be worth about 7% of what companies spend on R&D. 

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