U.K. TV, Animation Tax Credits on Track for April Launch

George Osborne - P 2012
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The British finance minister puts aside an initial $30 million for high-end TV, animation and video games projects and cracks down on tax avoiders.

LONDON – Britain got its latest annual budget  Wednesday, and the U.K. entertainment industry was surely paying particular attention. After all, the sector is one of the key beneficiaries of long-expected tax incentives for high-end TV productions, animation and video games that were part of the budget.

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George Osborne, Britain's chancellor of the exchequer, the equivalent of other nations' finance minister or treasury secretary, said in a brief mention during his annual budget speech that the introduction of the tax relief would play a big part in keeping the U.K.'s "world-class visual effects sector" competitive in his brief reference to the measures.

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It is designed to help keep the U.K. on the map with Hollywood studios and high end producers looking to make big budget TV projects - likely to be budgeted at $1.5 million plus per episode.

It will also avoid recent "runaway" productions that has seen high end projects produced by British production banners and US partners such as Birdsong, starring Eddie Redmayne, Matthew Goode and Clemence Poesy from NBCUniversal and Working Title TV from shooting abroad.

The budget documents, published after Osborne finished his speech, said that approval for the animation and high-end TV tax relief was expected "shortly," and they would start on April 1 as previously signaled by the government.

"The video games tax relief will be introduced following state aids approval," it added. That approval could come in Brussels next week, sources said.

The tax benefits, which have been in the works for about a year and have been supported by industry groups and personalities, will provide a 25 percent tax break on qualifying U.K. expenditures.

Budget documents indicate that the British government estimates it will allocate $7 million (£5 million) to its tax credit system for high-end television productions from April 6 for the rest of the fiscal year, which traditionally ends with the first calendar quarter. That will likely grow, according to the government forecasts, to $38 million (£25 million) for 2014/2015, rising to $98 million (£65 million) by 2017/18.

Industry sources said the figures are placeholder estimates, not caps since the government incentives don't come with limits.

In context, by May 2011, tax credits for large budget films – mostly U.S. studio backed projects - averaged $5.7 million (£3.7 million) per claim since the system came into force in Jan. 2007.

Claims by large-budget films – titles such as Harry Potter and the Deathly Hallows Part Two, Captain America: The First Avenger, Pirates of the Caribbean: On Stranger Tides and Hugo -- totaled £390 million ($604 million).

The 2013 budget documents also estimates the proposed tax credits for the video games and animation sectors. For the fiscal year starting in April, the government is forecasting a $23 million (£15 million) allocation rising to $83 million (£55 million) by 2017/18.

The budget also is good news for small movie and TV business in the U.K. with reductions in national insurance contributions and corporation tax.

Also the government pledged to launch a public consultation on options to provide further support for the visual effects industry through the tax system, with most industry insiders saying it will take the form of a consultation on how to widen the benefits of the existing large-budget film tax credit.

Adrian Wootton, chief executive of the British Film Commission and Film London said: "On behalf of the British Film Commission (BFC) we are delighted that, in addition to the incoming creative sector tax relief, the Chancellor has today announced further support for the U.K.’s creative sectors, and in particular the VFX industry."

Wootton said the new measures "will ensure that we can continue to compete globally on a level playing field; and continue to attract the biggest and most technically challenging film and television projects to the UK."

He added that public support for the creative industries "has a successful legacy in the U.K. with the current film tax relief delivering a return of $18 (£12) for every $1.57  (£1) invested by Government."

The U.K.’s current film tax credit system is in place until the end of 2015. It allows producers to apply for a tax credit of 20 percent of expenditures incurred in the U.K. up to a maximum of 80 percent of the total production budget.

Another part of the budget that is likely to draw attention from celebrities and other entertainment industry insiders are efforts to reduce tax avoidance.

"The government is undertaking a program of work to improve areas of legislation that have been subject to repeated attempts at tax avoidance," the budget document said. "The reforms will remove avoidance opportunities while simplifying the rules and reducing administrative burdens for exempt investors."

Osborne in his Wednesday speech said that the core of the tax avoidance reforms alone could bring in over $1.5 billion (1 billion pounds) in unpaid taxes.

"We will name and shame" tax avoiders, he added. "This government is not going to let you get away with it."

Tax avoidance schemes were a big media topic in Britain last year. For example, British comedian Jimmy Carr had to apologize for participating in such a scheme that caused an uproar in the media and even led Prime Minister David Cameron to heap criticism on him.

"I met with a financial advisor and he said to me 'Do you want to pay less tax? It’s totally legal.' I said 'Yes',” Carr tweeted about the issue. "I now realize I’ve made a terrible error of judgment."

The U.K. tax department said back then that it was investigating the tax avoidance scheme used by wealthy individuals, including Carr, who sometimes paid as little as 1 percent in income tax.

Georg Szalai contributed to this report