Increased Tax Credit Provides Welcome Relief to U.K. Independent Film Industry

As a seasoned film producer with decades of experience under my belt, I must say that the introduction of the Independent Film Tax Credit (IFTC) in the UK is nothing short of revolutionary for independent films. Over the years, I’ve seen countless projects struggle to secure funding due to budget constraints, and this new incentive seems like a breath of fresh air.

The introduction of the U.K.’s Independent Film Tax Credit (IFTC), made in March, seemed to have an immediate effect – particularly for one film production.

The biographical movie about boxer Naseem Hamed, titled “Giant” and starring Amir El-Masry, was nearly ready for production when the announcement came, with intentions to film on-location scenes in Sheffield, Hamed’s hometown, and all interior shots, including the critical boxing rings, in Malta. Already, sets were being constructed on the Mediterranean island, a popular destination for film productions due to its enticing 40% tax rebate program.

Later on, the introduction of IFTC made the U.K. significantly more appealing to producers when considering their bottom line. Previously offering a 20% tax break, it was now around 32.5%, initially advertised as 40%. However, after taking corporation tax into account, the actual percentage is lower. Considering the expenses associated with shipping the film abroad, “Giant” found no reason to relocate.

Immediately after receiving the tax credit, Zygi Kamasa, CEO of True Brit Entertainment, conducted an analysis and found it to be financially advantageous right away to keep the project here,” said Kamasa. “As a result, we quickly shifted our strategy within just a few days.

Initially, “Giant” might have taken the lead, but six months following its announcement, IFTC Kamasa has noted a substantial impact on his fledgling company, which was established in November 2023 and focuses on films for British cinema-goers. Originally planning to create three movies in its inaugural year, True Brit is now preparing to film its eighth production. While some productions, like “Giant”, may have occurred independently of the tax credit, Kamasa claims that there were definitely other projects that were accelerated due to it.

The British film industry has experienced renewed enthusiasm and anticipation following the IFTC’s announcement, even though it hasn’t been fully executed yet, marking a stark contrast to the challenging times of 2022. A study conducted by the British Film Institute that year revealed a significant yet ironic observation: the flourishing of the nation’s film and premium TV industry was accompanied by a detrimental effect on the independent sector. The report highlighted that the rapid expansion put immense pressure on the sector, making it difficult to compete with high-budget international productions in various aspects, such as meeting production costs, hiring talent, and reaching audiences.

According to data from the British Film Institute (BFI), it’s become progressively difficult to bring U.K. films with budgets under £15 million ($19.6 million) into production. In 2023, investment in independent U.K. films dropped by an additional 11%, reaching only £150 million ($196.9 million), a decline that followed a 31% plunge the previous year.

In 2024, following the declaration from IFTC, Harriet Finney, BFI’s deputy CEO and head of corporate and industry affairs, expressed optimism by stating, “The atmosphere within the industry is quite encouraging. This announcement has undeniably shifted the dialogue for independent filmmakers in our country.

The British Film Institute (BFI) is getting ready for an expansion when the legislative order and instructional notes are released this year. Finney stated, “We’re ensuring we’re well-prepared to handle what appears to be a surge of activity. There seems to be a rising optimism about domestic film production.

Simon Williams, head of Ashland Hill Media Finance, mentions a rise in proposals for productions looking to film within the U.K. “We’re receiving numerous projects inquiring if they should be filmed here,” Williams explains. He adds that some international production companies are contemplating modifying their scripts to accommodate U.K. regulations. “At the moment, the U.K. appears more alluring for film productions due to its substantial tax credit, which is among the largest globally, with the exception of perhaps Australia. However, Australia is quite distant and expensive to transport personnel there,” Williams says.

As a film critic, I must admit that while I’m excited about the prospect of filming in the UK due to its attractive tax incentives, I do share Williams’ concerns about potential cost escalation. After all, shifting locations might inadvertently erase the financial advantage we initially sought. So, it’s essential to tread carefully and ensure that the move doesn’t end up inflating our production costs.

Ashland Hill is currently producing “The Magic Faraway Tree,” an adaptation of Enid Blyton’s cherished book, with backing from them. Recently wrapped filming for “The Scurry,” directed by Craig Roberts and featuring Ella Purnell, Rhys Ifans, and Antonia Thomas, which Ashland Hill financed due to the increased tax credit. This funding opportunity made it possible for this project to move forward. However, one potential drawback is that lenders might hesitate because they can’t claim their tax credits until next April. While in the previous tax credit system, producers could make interim claims and gradually pay down loans more quickly, in this case, they must wait 18 months for a single, final claim. According to Williams, this could be a concern for some lenders.

Alex Ashworth, the head of production at Anton, expresses optimism about the IFTC (Independent Film Tax Credit), stating it will have a substantial effect, especially for movies in the £5-15 million ($6.5-19.6 million) price bracket. “I believe it will greatly benefit independent film producers who’ve faced challenges due to the disappearance of mid-budget productions,” Ashworth explains. “For quite some time, that sector was the U.K.’s golden zone, producing films such as ‘The King’s Speech’. I feel production costs have risen significantly, making it challenging to produce movies within this budget range. While our incentives are satisfactory, they don’t always measure up to certain other territories. Thus, by implementing the IFTC, you’re essentially compensating for the inflation that has affected our film industry over the past five to seven years. I think it will greatly aid those independent films that may be struggling to meet the financial requirements of higher budget productions.

Ashworth believes that Anton is engaged in around four to five upcoming filming projects, scheduled with the IFTC within the subsequent 12 to 18 months.

Alastair Clark, the film producer behind the recent premiere “Sister Midnight” at Cannes, views the IFTC as a beneficial change for the industry. Clark expresses an optimistic tone, stating, “The atmosphere is fantastic.” He further explains that while the actual benefit is 32.5% after corporation tax, instead of the initially stated 40%, it still signifies a substantial enhancement compared to the previous setup.

Clark is already incorporating the IFTC into his project planning. “Certainly, one very solid project right now that we’re raising the finance for. It’s a big part of it,” he says. Clark believes the increased tax credit will reduce the need for riskier private financing in some cases. “Borrowing against the tax credit versus borrowing against an MG (minimum guarantee) or a sales advance, is cheaper, and therefore helps finance plan a budget,” Clark said.

As the IFTC (Independent Film Tax Credit) gradually rolls out, early reactions indicate it could significantly strengthen the British independent film industry and make it more competitive on a global scale. For Phil Hunt at Head Gear Films, this development is particularly encouraging following the difficulties of Brexit, which he describes as devastating for indie co-productions. As a seasoned producer, he’s already observed an increase in North American producers planning to shoot more productions in the U.K., and when speaking with industry professionals in Los Angeles, there appears to be a shift away from the United States.

However, it’s important to note that executives aren’t viewing IFTC as the ultimate solution without any room for improvement. Just like other fresh financial incentives, it’s expected to undergo adjustments and modifications. This is particularly relevant given the U.K.’s recent change in government to Labour, which historically has been more inclined towards supporting the arts. Many hope that the 40% rebate could potentially represent a full 40%, rather than just a partial one.

Kamasa expressed his opinion, stating, ‘It would be great if the government could examine this issue.’ He believes it should receive the entire 40% rate to ensure fair competition with countries such as Malta and Italy.

HOW THE IFTC WORKS

The Investment Fund Tax Credit (IFTC) is determined based on “essential spending” associated with production tasks. Eligible businesses can claim up to 80% of their essential spending or the U.K. essential spending, whichever is smaller. For a film budgeting £15 million ($19.6 million), this could potentially result in a maximum credit of £6.36 million prior to taxation.

Following corporation tax, ranging from 19% to 25%, the real money saved can fluctuate significantly, falling between approximately £4.77 million ($6.26 million) and £5.15 million ($6.76 million). This is a significant boost compared to the former Audio-Visual Expenditure Credit (AVEC) system, which would have only granted between £3.06 million ($4.01 million) and £3.30 million ($4.33 million) for an equivalent budget.

The British Film Institute (BFI) checks film budgets against the requirements set by the Independent Film Trade Corporation (IFTC). If a production’s spending surpasses the £15 million limit during filming, it can opt to stick with the IFTC or switch over to the AVEC financing system instead.

Starting from April 1, 2025, IFTC claims can be forwarded to HMRC (Her Majesty’s Revenue and Customs). These claims should cover expenses incurred from April 1, 2024, but only if the principal photography had started after this same date, April 1, 2024.

2024-09-08 15:17

Increased Tax Credit Provides Welcome Relief to U.K. Independent Film Industry

Read More

Minority Mindset