European Commision okays new Cultural Test for film tax relief

Written by Nic Wistreich on . Posted in Finance

New UK Tax Relief to replace Section 42 from January 1st 2007

A new 'Cultural Test' for British films has been given the green light by the European Commission today, and should come into force on 1 January 2007. The test determines whether films can qualify for the new system of tax relie announced by the Chancellor in the Budget earlier this year.

Cultural Test 

There are four sections in the test, which together measure the extent of a film’s British cultural character:

  • Cultural Content – is the film set in the UK, does it have British characters, is it based on British subject matter or underlying material and is it filmed in English?
  • Cultural Contribution – does the film contribute to the promotion, development or enhancement of British culture relating to cultural diversity, heritage and creativity?
  • Cultural Hubs – is the film made in UK studios or on UK locations, does it use British visual or special effects or music recording facilities, does it use British post production houses?
  • Cultural Practitioners – are the people who work on the film from the European Economic Area?

Film makers will be awarded points in each of the categories and must score a minimum of 16 points out of a possible 31 to pass the test.

The test, which was published in December last year, has been revised in line with the European Commission’s State Aid requirements.

The new tax relief

The new tax relief will mean:

- For films that cost up to £20 million, the Film Production Company (FPC) will be able to claim an enhanced deduction of 100% with a payable cash element of 25% of UK qualifying film production expenditure. 

- For films that cost over £20 million, the FPC will be able to claim an enhanced deduction of 80% with a payable cash element of 20% of UK qualifying film production expenditure. The minimum UK spend threshold for qualifying films will be set at 25%.  

As part of the State Aid approval process, the draft Cultural Test as passed by Parliament in April 2006 has been substantially revised in order to satisfy the state aid requirements of European law. The British Government has  been working with the Commission to ensure that the revised test does meet those requirements which allow EU member states to subsidise films for cultural purposes, within the regime established to protect open competition between member states.    

Subject to Parliamentary approval of the cultural test, the new film tax incentives will then be activated from 1 January 2007. 

Full details on the transitional arrangements for films already in production will be available from Thursday morning at