Tax blow leaves the film world reeling

The Government is proposing a further clampdown on tax breaks on British films, which could pose further threats to the embattled industry.

The Government is proposing a further clampdown on tax breaks on British films, which could pose further threats to the embattled industry.

Under the present system, films made in countries such as Canada and Australia can attract British investors by being classed as a "co-production". So long as 20 per cent of the film's staff and facilities are from the UK, and UK producers contribute to 20 per cent of the budget, investors in this country can get tax breaks on their input. Wealthy investors can defer the tax they pay over 15 years.

But a draft proposal from the Department for Culture, Media and Sport calls for the rules be tightened. The increase to a limit of 40 per cent rather than 20 per cent would have a "serious effect" on the film production industry in the UK, according to a film finance expert.

"Foreign producers will look at other European countries who have less stringent spend rules to shoot their films," said Philip Alberstat, a media and film lawyer at Osborne Clarke. "This will result in a substantial loss of employment on both the technical and creative side of the film industry."

He points out that the industry is already going through a difficult period and is "reeling from a 40 per cent drop in production activity, which has led to many job losses. A change in the rules will result in a further drop."

Mr Alberstat has worked on British films including 51st State, starring Samuel L Jackson and Robert Carlyle, which was one of the more successful lottery funded projects, and Beautiful Joe, which starred Sharon Stone and Billy Connolly. He regularly carries out film financing work.

After the current consultation period ends, the DCMS is expected to publish a final version of the proposals in January, to come into force in March.

The Government has already clamped down on tax loopholes for films in its last Budget. It said that too many companies were trying to classify commercials and TV productions as British films.