The UK’s enhanced tax relief for film production has gained EU approval under its State aid rules. This enhanced 25% film tax credit was announced in the pre-election budget in March 2015 subject to approval by the EU.

A film can claim the tax relief provided that a cultural test is satisfied. To apply for the relief a film production company must be registered with Companies House in the UK and within the scope of UK corporation tax. The cultural test is based on points given for certain criteria including the film being set in the UK or EEA, lead characters being UK or EEA citizens, and criteria concerning language, demonstration of British creativity and location of photography and citizenship of cultural practitioners (director, producer, composer, cast, crew etc).

Previous legislation

Previously the film tax credit applied at 25% on the first GBP 20 million of expenditure and at 20% to amounts above that. For large budget films the film tax credit could be claimed on eligible UK production expenditure up to a maximum of 80% of the total budget for the film (100% for lower budget films). A minimum of 25% of the film’s budget was required to be spent on UK qualifying production costs.

Revised legislation

The revised legislation has removed the distinction previously made between limited budget and larger budget films. The 25% rate of credit applies to all expenditure, without limit, so higher budget films receive the same rate of credit on all their expenditure. Also, the restriction to a maximum of 80% of expenditure has been removed so all films are entitled to a credit on 100% of their production expenditure.

The UK’s creative industry tax relief aims to attract overseas investment into the UK. The UK film industry spends around GBP 1.4 billion annually in the UK. The film tax relief aims to keep the UK competitive in the industry and currently between 200 and 300 films are benefiting from the film tax credit each year (222 in 2014). Films that received the film tax relief include the Theory of Everything, Paddington, Skyfall and Gravity.