CREC021000 - Qualifying productions: films

For a film to qualify for an expenditure credit, it must meet the legislative definition of a ‘film,’ and also the three qualifying criteria outlined in section 1179DB of the Corporation Tax Act (CTA) 2009. 

Animated films receive a higher rate of credit than live-action films – see CREC061300.


Meaning of ‘film’ 

Section 1179DA CTA 2009 states: 

“Film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture. 

‘Film’ includes the film’s soundtrack. 

A series of films is treated as a single film for the purposes of the Audio-Visual Expenditure Credit (AVEC), unless the series: 

  • has more than 26 parts 

  • has a running time of over 26 hours 

  • is not a self-contained work or series of documentaries on a common theme


Animated films – section 1179EA CTA 2009 

A film is an animation if (and only if): 

  • the imagery of the completed film includes animation, and 

  • the core expenditure on the completed animation constitutes at least 51% of the total core expenditure on the completed film

The 51% test takes all core expenditure into account, both UK expenditure and non-UK expenditure. 

Please see CREC024000 for details of what counts as animation costs and how to treat mixed animations.

 

Qualifying criteria – section 1179DB CTA 2009 

A film is a qualifying film for AVEC if it meets the following criteria: 

  • it is intended for theatrical release 

  • it is certified as British (see CREC028000) 

  • at least 10% of core expenditure on the film is UK expenditure (see CREC029000) 


Meaning of ‘theatrical release’ – section 1179DC CTA 2009 

‘Theatrical release’ means exhibition to the paying public at the commercial cinema. 

It must be intended that a significant proportion of the earnings from the film will be obtained by such exhibition. The phrase ‘significant proportion’ is not defined in legislation, but HMRC accepts that 5% of total estimated income is a significant proportion of the earnings of a film. 

The fact that a film is certified as British does not affect whether it is intended for theatrical release. The British Film Institute, on behalf of the Department for Culture, Media and Sport, can certify films that are not so intended. 

A film may meet the theatrical release condition even if the intention is to gain a significant proportion of the earnings from theatrical release abroad, rather than in the UK (although a British film would normally be expected to be intended for UK theatrical release).


Intention 

The legislation does not specify whose ‘intention’ this should be, but at any time there will normally be someone entitled to determine how the film is to be exploited. This would generally be the person who commissioned it – if a company, the directors of that company – but there may be cases where someone else has a prior claim. 

It is not necessary for the film to actually be released for showing to the public at the commercial cinema to meet the intention condition. However, if it was not eventually released, the question arises of whether it was ever so intended (and, if so, when the intention changed). 

If there is any doubt about the intention, the following factors would count in favour of the film being intended for theatrical release: 

  • a finance plan written on the basis that the film will be released theatrically 

  • a film which is a normal full-length or short feature film of a type commonly shown at cinemas 

  • production in a format suitable for theatrical showing at the commercial cinema 

  • payment to actors and other participants on terms in line with those prevailing for cinema films (rather than, for example, television work) 

  • the relevant person can demonstrate, at the end of the relevant accounting period, the intention to seek a contract to present the film in the cinema 

A factor which would count against an intention for theatrical release is where there are no commercial cinemas which show the particular type of film

Where the production is commissioned by a television company or is clearly more suited to some distribution channel other than the cinema, the theatrical release condition may not be met. This will be the case even if the film is shown at a cinema. For example, even where episodes of a TV soap opera or of another TV production were screened at a cinema before their transmission on television, the condition would still not be met.


Theatrical release condition not met 

A film can only be a qualifying film for AVEC for a particular accounting period if, at the end of that period, it is intended for theatrical release. 

If a film is not intended for theatrical release at the end of an accounting period, it cannot qualify for AVEC as a film in respect of that period or any subsequent accounting period (but credits given in previous periods are not clawed back). However, if, at the end of the period, the film is intended for broadcast instead, it may qualify for AVEC as a television programme (see CREC026000). 

It may not be readily apparent whether a feature-length production is intended for broadcast on television as a programme or intended for theatrical release as a film. There may be more than one contingency plan for exploitation of the production. Where both conditions are met, the theatrical release condition takes precedence and the production is treated as a film.