UK / Hungary: Film and TV
It is not uncommon for actors and actresses to use personal service companies (PSCs) (i.e. loan out companies, slave corporations etc) through which to provide their services to film/TV productions. A problem often encountered is where the PSC is disregarded by the state in which the services are being performed. UK actors regularly ply their trade in Hungary where there is a significant film and TV industry. UK cast members that are contracted via PSCs will be taxed as individuals in Hungary (pursuant to the UK / Hungary DTA), giving rise to a mismatch. The question we are often asked is whether UK tax legislation allows a credit for the Hungarian personal income tax paid against the UK corporate income tax.
The answer is yes, it does and is dealt with in HMRC guidance at International Tax Manual 168063.
There are two options to deal with this:
- the foreign income tax is credited against the corporation tax of the entertainer’s PSC; or
- the foreign income tax is credited against the income tax on the salary or dividends taken by the entertainer from his PSC. This latter option is only available if there is a “clear and direct” link between the fees for the performance in the foreign country and the salary/dividend such that it can be said the salary/dividend is derived from the performance fee.
Of course, the tax credit can still be restricted in accordance with normal double tax relief rules.
The UK : Film and Tax TV Credits
With the increase of must see shows and films that the team are watching, we thought now was a good time to have a closer look at the UK’s film and high-end reliefs that, like some TV shows, had a bad start (Men Behaving Badly) but recovered and went from strength to strength (Blackadder).
The original relief was launched in 1997 to encourage film making by allowing relief for the production or acquisition of the master copy of a film. From the start, the relief was abused. Some of the “films” made to obtain relief were of such low quality they made Attack of the Killer Tomatoes look like Citizen Kane.
The regime was tweaked again and again to stop the avoidance, but to no avail. It was finally put out of its misery in 2006, while the battles over the £1bn said to have been lost to tax avoidance continues.
The new regime, in contrast, has been a great success. Copying an adage from Hollywood that there are no new ideas, the UK’s film tax regime, has a nod towards the Canadian and Irish regimes.
It works by channelling the money (the tax credit), to the person who actually makes the film – the producer. It no longer goes to the person financing the film. This means that the person who is making the hiring and firing decisions, the person who is creating the jobs in this high value industry, is the one to benefit from the incentive.
The film scheme relief was such a success it was widened to high-end TV and animations in 2013 and then over the next few years to video games, theatre, children’s TV, orchestras plus museums and exhibitions, becoming the creative industries reliefs. Latest figures from HMRC show that they paid out £1.1bn across all of these reliefs in 2018/19, with £595mn being paid out for films and £246mn for high-end TV.
The relief is available for one production company per UK film or TV series, with the Britishness of the project being certified by the BFI. It allows the production company to double 80% of their “core expenditure” relating to pre-production, production and post-production or all of their UK core expenditure, if it is less than 80% of the total. Then, and here is the cinematic magic, these losses can be “sold” to HMRC for 25p in the £1.
The production and post-production phases are the main target of the relief, as this is where the majority of jobs, especially the high value ones, are generated. The UK is now a world leader in special and visual effects that are added to films and TV series in post-production.
These skills are also used in animations and video games (as mentioned, areas that not uncoincidentally also have their own reliefs), whilst the production phases with principal photography taking place in various locations across the UK, enhances the tourist industry in those locations. Several members of the team have the DVDs to prove they rode a broomstick at “Harry Potter World” (aka Warner Brothers Studio, Leavesden) and can’t wait to do the Games of Thrones tour in Northern Ireland.
With the doubling of their expenses, many films can now be made that previously would not have received the “green light” as the producers can turn a profit, even on films that made a commercial loss, or make a larger profit upon one that was only marginally successful commercially.
| Sale proceeds of film
| Total expenses
| (of which £10m are “core”)
| Gross Profit (Loss)
| Enhancement of core expenditure (80%)
| Post tax loss
| Tax Credit refund (@25%)*
| Post tax “cash” profit
*Credit is the lesser of the losses or the enhanced expenditure (here £8mn).
Is it any wonder that the regime has proved so popular?
There are quirks to each regime. For films, you must intend that at least 5% of the revenue comes from theatrical release (i.e. you can’t just run it in one cinema for one day). In other words, if you did this, your film would qualify for the Oscars but not for film relief. It must also be a film – you can’t just put a double episode of a TV series onto the screen and call it a film.
For high-end TV you must have a slot length of over 30 minutes, which will rule out most half hour comedy shows as they have a slot length of 30 minutes even though they are only 19 to 22 minutes long. The average cost of each episode must also be over £1mn. This is designed to show that the TV series is “high-end”, but given the amounts charged by some TV personalities, this total is not too difficult to reach. Finally, and again to show the “high-end” nature of the programme, the TV show must be a drama or a documentary. It can’t be a quiz or chat show, nor news or live events. Some of these restrictions are relaxed for animations and children’s TV.
Many films and TV shows are now made in several countries, often in countries where there are tax incentives (see Hungary above). The UK regime allows for that. It allows for a UK production company and a non-UK one, if the film or programme is being made under a co-production treaty. The UK has 11 of these, with possibly the most important being Canada and Australia. The UK is also a signatory to the European Convention on Cinematographic Co-Production, which is a Council of Europe document and shouldn’t be affected by Brexit.
Andersen has dedicated media teams in many of the countries where there are tax incentives and we can assist on single country or co-production projects.
If you have any queries regarding the UK creative industry reliefs please contact Zoe Wyatt on +44 79 0978 6144 or zoe.wyatt@uk.Andersen.com
or Andrew Parkes on +44 20 7242 5000 or andrew.parkes@uk.Andersen.com