Analysis: Will George Osborne’s Autumn Statement tax breaks really help Britain’s VFX and film industries?

Double Negative's recent VFX projects include work on The Hunger Games: Catching Fire, which is in cinema's currently

Alex Hope, MD of Double Negative, explains what the Autumn Statement really means for UK VFX.

You may have missed it in the Chancellor's Autumn Statement, but among the fuel duty freezes and pension extensions, the government also announced some significant changes to UK film tax relief that will benefit Britain’s VFX and post-production companies, among others.

Among the proposed measures  – which depend on EU state aid clearance – are a change to the existing tax relief film studios get on production budgets spent on filming activities – such as pre-production, principal photography and post-production (including VFX) – which take place within the UK.

The current structure of the tax relief – while attracting film and TV production to the UK – had resulted in some films shooting in the UK but taking VFX work overseas. The new measure aims to keep as much creative work within the filmmaking process in this country.

“The change of the high budget film rate of relief is the first stage of harmonising it with all the other creative industry reliefs at 25%,” says Alex Hope, MD of VFX giant Double Negative. “This will make the UK more attractive to film production in general, which will hopefully have a knock on effect on VFX.”

UK VFX tax relief

Previously films spending up to £20 million could claim a rebate of 25% of qualifying UK spending, but if the budget was any higher, the rebate for the entire spending dropped to 20%. Under the new proposal, the first £20m of any film's production budget will qualify for a UK tax relief at 25%, with a 20% rebate applied to any spending thereafter.

“The change removes the 'cliff edge' when a film's core costs reach the £20m threshold between the low budget relief and the high budget relief,” he added. “This state of affairs meant that at a certain budget level it was financially inefficient to spend more on a film.”

The proposal follows a government consultation on how best to support UK VFX companies – which itself followed legislation in the April 2013 Budget in support of the UK’s other digital content industries such as animation, games and high-end television – as well as relevant training.

The mooted changes also include a reduction in the minimum amount of spending a studio has to do in the UK to qualify for relief: from 25% to 10% of the overall production/post costs.

A still from The Hunger Games: Catching Fire

In addition, the Autumn Statement proposes that the cultural test, which determines if a film can qualify as 'British', will be expanded to allow for European as well as British Culture, in line with other creative content tax reliefs.

In the opinion of trade body, UK Screen Association, these measures will encourage minority co-productions where the UK spend is less than 25%.

Alex, a UK Screen board member, said the reduction of the 25% core cost floor to 10% will benefit not only VFX provision, but also other digital preproduction and production services offered by UK facilities.

“It ensures that we'll tap into new areas of business that would not otherwise come to the UK. It's a great opportunity for the industry as a whole.”

Alex Hope, MD of Double Negative

“A production which would pass the UK's cultural test but which chooses to do its principal photography elsewhere can still opt to do its editing, audio, VFX, secondary shoot and so on in the UK,” Alex continues. “These elements might not have reached the old 25% floor for eligibility but now stand a better chance of qualifying.”

Alex added that he had not seen the detail/proposed wording on the cultural test yet, but was positive about the change that encompasses European source material and characters, instead of only British sources.

“A film based on Grimm's fairy tales would win points in this section, for example” he explains. “The VFX impact would be a knock-on benefit from a larger number of productions eligible for and attracted by UK tax reliefs.”

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