The much-anticipated new tax break for the UK animation industry finally went into effect on April 1, bringing with it a renewed sense of optimism for increased UK-based production, as well as international co-production and local training opportunities.
With the CMC Animation Exchange taking place today at the BIS Conference Centre in Westminster, animation producers and their global partners expect to learn more about the implications of the new tax break, which allows a 25% credit of UK spend on up to 80% of a production’s core budget (preproduction, principal photography and post-production) for high-end TV productions, animation and video games.
Productions must also pass a cultural test for British certification in order to receive tax relief, and as a boost for mixed-media productions, 51% of the core cost of a program has to be spent on animation to be classified as an animated project. In addition, there is no minimum threshold of spend set for the animation tax break, unlike high-end drama, thus providing greater opportunities for small and large productions.
While the draft legislation won’t officially become law until late July 2013, Liz Brion, head of media tax at UK-based financial advisor Grant Thornton, says she doesn’t expect any major objections or changes to the legislation upon royal assent.
“Producers can be reasonably confident about starting to film now that this will be law by July,” Brion says. “They just won’t be able to make a claim until it becomes law.”
Despite the unknowns, producers can get a head start on the tax relief process. Oli Hyatt, chair of Animation UK, says the certification unit at the British Film Institute is now accepting draft online pre-approval applications for the cultural test. Details can be found at www.bfi.org.uk.
“The BFI will offer a letter of comfort that producers can show to investors and broadcasters stating that their series will pass the cultural test on the basis of the published draft regulations,” Hyatt says.
The letter provides assurance that the applicant will receive the legal certificate issued by the BFI once the tax break legislation goes into effect in August after receiving royal assent.
“Production details such as who works on what and where will have to be registered in as much detail as possible,” explains Hyatt. “We expect lots of questions on the nuances of what counts as core spend and how to record those.”
Other questions may arise around development expenditure and the degree to which it will qualify for the tax credit. Brion says it’s an area for animation and drama that has not been totally clarified by the legislation.
“For the existing film tax credit, development spend does not qualify for the increased tax credit,” she says. “The proposal was always that the government understood that animation has long lead times and normally there are quite high costs that can be incurred before projects get green lit. The intention always was that a significant amount of development spend would be able to qualify for the tax credit.”
Brion notes that her discussions with HM Revenue & Customs indicate that the government will look at all productions on a case-by-case basis to see the extent to which development spend is actually incurred over the life of a project.
On the co-production side, according to Brion, extra attention will be required in terms of co-production structure and who is named the lead producer.
“The draft legislation says there can only be one company claiming this credit. Going forward it will be very important for UK producers wanting to launch co-productions to make sure they are very clear about their role in the co-pro,” she says.
“For smaller producers doing different productions, they need to think about whether they are going to set up a company for every single production they launch or whether they are going to put them all in one company to make a claim for all of the productions together.”
Meanwhile, Hyatt says the tax break comes at crucial time for the UK industry, which has been struggling to compete against countries that offer government subsidies.
“The tax break will create opportunities for people outside the UK to bring their projects to us to animate, it will help UK producers of original IP make an impact around the world, and the training fund will bring huge opportunities for people who maybe didn’t think there were jobs for them a couple of years ago,” he says.
“Next year could be a huge year for UK animation.”
The final draft legislation for the Finance Bill published on March 28 can be found at www.publications.parliament.uk (Schedule 15, from page 259), and information on the Children’s Media Conference, July 3-5, can be accessed by visiting www.thechildrensmediaconference.com.