The British film industry has enjoyed a boom in recent years, largely thanks to the unparalleled tax breaks on offer for production.
With no other industry enjoying such generous terms, it is unlikely that the government will extend section 48 of the Finance Act when it expires in July 2005.
The Act has already been extended once when the film industry successfully lobbied the government to get the measure prolonged for another three years in 2002.
More British films have been made, but critics suggest an unintended effect of Section 48 is that films can enter into the production stage before they are ready, compromising the quality of the final product. But losing the tax break will present a significant blow to British producers and directors.
Ben Melling, tax partner at Grant Thornton, said: ‘It is not likely that 100% tax relief will be extended. Section 48 has done nothing to improve the quality of output. The question is what the alternative arrangement will be, if there is one. Perhaps we should look at direct funding from arts council grants to ensure the money goes where it is needed.’
Baker Tilly said that tax breaks had become essential for the British film industry. Christine Corner, head of films and television at the firm, said: ‘Production is reliant on tax breaks, but they need to be restructured so that the commercial performance of a film is important to investors.’
‘In addition, government support needs to be channelled not only into production but also into distribution and marketing.’
Baker Tilly pointed out that due to the tax relief available, virtually every British film produced in the past three years had been completed under a sale and leaseback deal.
Worryingly for the film industry, Baker Tilly has cited a significant fall in pre-sales, where a distributor commits to purchase the distribution rights of a film before the film is made.
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