Great news, the TV Tax Credit is conceived, if not born yet. A welcome injection for UK high end drama and animation, even the computer games industry gets some action! The breaks start from 6 April 2013, all subject to EU State Aid approval.
The draft TV Tax Credits legislation is very close in structure to the existing Film Tax Credits regime, which is good news for those of us familiar with the operations and workings of the rules. In fact it is broadly what we might have expected, with an effective cash incentive of up to 20% to make British Qualifying TV of greater than 30 minutes in length, drama costing (pro rata) £1m per hour or animations for less. UK Cultural Tests will apply and co-production opportunities may be limited (see below). To qualify as an animation a programme will need at least 51% of the core production expenditure to be spent on animation.
After some confusion over last week’s announcement when the expenditure uplift appeared it might be as high as 100% of qualifying expenditure, clarification has been provided by the publication of draft legislation. And now for the Malcolm Tucker moment (or Yes Minister for older viewers) where the Treasury neatly tidy up the announcement:
Last week the expenditure enhancement appeared it might be as high as 100%, this week it’s definitely limited to 80%!
Last week the Tax Credit was 25% of Qualifying losses surrendered, this week’s announcement only uses the description losses….. …..whilst it is loss related in many cases it will effectively be up to 20% of relevant expenditure because of the 80% limitation above. See the relevant sections below:
LAST WEEK: Treasury 5 December 2012 http://cdn.hm-treasury.gov.uk/as2012_chapter_2.pdf
2.73 Corporation tax reliefs for the creative sector – The Government announced at Budget 2012 that, following consultation on design, it would introduce corporation tax reliefs for the video games, animation and high-end television industries from April 2013, subject to state aids approval. Under these reliefs, qualifying companies will be able to choose between an additional deduction at a rate of 100 per cent of enhanceable expenditure or a payable tax credit at a rate of 25 per cent of qualifying losses surrendered. (15)
THIS WEEK: Draft Legislation 11 December 2012 http://www.hm-treasury.gov.uk/d/corporation_tax_reliefs_for_the_creative_sector.pdf
The high-end television tax relief will allow eligible companies engaged in the production of qualifying high-end television productions to claim an additional deduction in computing their taxable profits and where that additional deduction results in a loss, to surrender those losses for a payable tax credit. Both the additional deduction and the payable credit are calculated on the basis of UK core expenditure up to a maximum of 80 per cent of the total core expenditure by the qualifying company. The additional deduction is 100 per cent of qualifying core expenditure and the payable tax credit is 25 per cent of losses surrendered.
The draft legislation describes the losses surrenderable for the tax credit as based on Qualifying UK Expenditure or (if less) 80% of All Core Expenditure. Companies will be entitled to uplift their expenditure by the appropriate amount and then surrender certain losses to obtain the cash tax credit.
It seems that going forward there may need to be further developments regarding which UK Co-Production Treaties cover TV Tax Credits as some are limited to Film, whilst others cover TV too and a third tier depend on interpretation of domestic legislation including the Films Act 1985.
Nyman Libson Paul