Limited sale and leaseback reprieve for TV producers

Despite fierce lobbying from PACT and television producers, the prospect of keeping the sale and leaseback tax break available for television productions – even high end, big-budget drama – has now evaporated. However, limited transitional provisions have been introduced to save the tax break for certain television productions which were affected by the previous 17 April 2002 deadline.

According to an Inland Revenue Statement of 28 June 2002, the Finance Bill will restrict tax relief to those films where the film is “genuinely intended” for theatrical release and “it is intended that a significant proportion of the earnings from the film should be obtained from exhibiting the film to the paying public at the commercial cinema”. Moreover, transitional UK tax relief is proposed for certain television productions, namely TV drama (which includes animated drama but excludes advertisement/promotional films, discussion, news or current affairs programmes, quiz shows and panel shows, amongst others) with a production expenditure in excess of £500,000 provided that principal photography commenced on or before 30 June 2002. The changes apply to films commencing on or after 17 April 2002 and those completed on or before 1 January 2002 which have not been certified as British by the DCMS by 17 April 2002.

The Bill also deals with the Treasury’s concerns about producers increasing the level of deferments to boost production expenditure. It now restricts tax relief on films with budgets not exceeding £15 million to production expenditure which has been paid at the time the film is completed or is unconditionally payable within 4 months of the date the film is completed. This is aimed at removing deferments and payments which are contingent upon the film making sufficient profits or income from the allowable production expenditure and affects all films completed on or after 17 April 2002.

Problems are, however, likely to arise in proving the intention of the film-maker and in establishing exactly what “a significant proportion” of the earnings of the film shall be. Further clarification in the matter will be helpful as the current drafting of the Bill leaves some room for interpretation.

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