Latest U.K. tax revamp keeps heads on swivel
Biz mulling latest loophole closureLONDON -- The U.K. film industry, lawyers and accountants on Monday were mulling the impact of Friday's decision by the government to close a tax loophole used by individuals in limited liability partnerships to offset losses against tax.
And the harbingers of doom and gloom were gathering as the impact of the Revenue and Customs brief to limit the trading loss threshold to just £25,000 ($48,000) for such partnerships involving high net-worth investors is assessed.
What the legislative crackdown essentially means is that such individuals will no longer be offered tax reductions on any losses incurred in high-risk partnerships such as film financing.
Sources close to Revenue and Customs made it clear that the latest move was not aimed at the film industry, but will likely affect it.
As a spokesperson for the U.K. Film Council put it to media outlets here, the latest tax ruling is "not about film, but about tax avoidance."
Movie production financiers specializing in film financing models here include Ingenious, Scion, Future and Prescience.
Ingenious commercial director Duncan Reid said that reports of the move being an attack on so-called GAAP (general accepted accounting practices) schemes were overblown. "It is not an attack on GAAP financing in any way," Reid said.
But he did say that the move will have an "effect on the levels of investment in all the creative industries in the U.K." -- not just the film industry.
"Investing in film is a risky business, so anything offering tax relief on potential losses is a good thing. Losing that will mean the levels of investment will change. But the commercial structure of Ingenious Film Partners will remain in place," Reid said in an interview.
Ingenious is one of the biggest players in behind-the-scenes movie financing here, gathering equity cash through various mechanisms for a host of productions including "Alien Vs Predator," "Vanity Fair," "X-Men: The Last Stand" and "Shaun of the Dead."
Elsewhere, Scion chief Jeff Abberley was conducting a hurriedly put-together conference call with U.S. partners to discuss the possible implications of the new rules.
Abberley said the impact will be "very serious" and that several movie productions in pre-production would be "left with big gaps in their financing plans."
With such complex structures involved in film financing in the U.K., some observers say the changes could mean that the sudden and immediate introduction of the new limits will leave productions that are about to lens with a giant hole in their budget. Press reports here all highlighted the upcoming update of Ealing Studios' schoolgirl classic "St. Trinian's" as being one of the high-profile victims of the changes.
Producer Barnaby Thompson declined to give details on the new-look financial backing for the movie but said the plan was to start shooting in three weeks. "We're hustling right now but I think we'll be fine," Thompson said.
The Inland Revenue said on it's Web site that the new limit "will apply to trading losses sustained as a non-active partner on or after March 2, 2007."
The immediate move -- with no transition period -- almost certainly removes a stream of cash from movie productions. "It doesn't matter if that cash came because someone wants to avoid tax, it was still being used to fuel production," one insider said.
Industry fears are that the Inland Revenue move will have as big an impact as the sudden clampdown on tax funds in early 2004, which saw financiers and producers attending the Berlin Film Festival reel from the effects (HR 2/10/04).
"Because this happened a couple of years ago anyway, the industry has gotten used to finding other ways to finance films," one tax specialist said.
And the jury is still out on whether or not movies accessing outgoing sale and leaseback arrangements under transitional arrangements as the new tax credit system becomes established will be affected.