Accounting firms both large and small are having great success in persuading clients to invest in British-made films to obtain 100% tax write-offs. Sale and leaseback partnerships set up by investment boutique Pinder Fry and Benjamin raised Pounds 260m between October 2000 and the April 2001.
Tracy Benjamin of PFB told a seminar hosted by the ICAEW that the idea had been successfully marketed across a wide spectrum of firms, from small to mid-tier, as well as by two Big Five firms.
‘We are actually finding that these partnerships are oversubscribed,’ he added.
Under sale and leaseback partnerships, the partnership purchases the master negative of a British-certified film and leases it back to the producer for the next fifteen years allowing for the film to be distributed abroad and sold to video and television networks.
The 100% tax relief for sale and leaseback arrangements was introduced by the government in the 1997 Finance Act and applies to British-made films that cost a minimum of Pounds 15m to make.
Benjamin said each partnership involved 300 or more subscribers who invested in 25 British films, certified by the Department of Culture, Media and Sport. Most recently, Enigma the code-breaking thriller starring Kate Winslet and produced by Mick Jagger, has been bought under such an arrangement.
Subscribers to such partnerships are high-earners who must invest a minimum of Pounds 100,000. The Inland Revenue then repays the taxpayer a full rebate, resulting in a substantial cash back.
An investment of Pounds 100,000 would require the subscribers to put in Pounds 17,000 of their own money, with the rest financed through a bank loan. The Revenue would then reimburse the taxpayer Pounds 38,000 resulting in a profit cash flow of Pounds 21,000.
‘This money could then be used to pay off a mortgage or invested in a portfolio,’ Benjamin said. ‘Tax deferred is tax saved.’
Furthermore, if the films are profitable, the partnership shares in a small part of the economic benefits, but is not adversely affected if the film bombs at the box office.
Harry Hicks, a partner in mid-tier firm Baker Tilly’s media practice, said the scheme was so successful that the DCMS had increased its resources assigned for certifying films. Last year, the government office took up to four months to complete this process, but Hicks said he expected ‘no similar problem this year’.
And in the March Budget, the government extended the 100% write off for British film production to July 2005.
‘We only lobbied for another two years, but the government gave us three more years,’ said Hicks.
‘This an idea the Revenue likes,’ he added.
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