UK Independent Film Tax Credit (IFTC) Approved: Key Updates for Producers
The UK government has passed the new Independent Film Tax Credit (IFTC) into law, providing welcome clarity on the qualifying criteria and director/scriptwriter conditions.
On October 9, 2024 the UK government formally passed the Statutory Instrument finalising and bringing into law in full the Independent Film Tax Credit (IFTC).
The Statutory Instrument brings welcome clarity on:
- The qualifying criteria for the credit in terms of how the budget condition will be applied; and
- The director/scriptwriter conditions.
What are the qualifying criteria?
In addition to passing the Cultural Test, films wishing to access the IFTC will also need to obtain a Certificate of a Low Budget Film. To do this, a film will need to meet:
- The budget condition; and
- The creative connection condition.
Is the budget condition still £15m?
The budget condition requirement has been expanded to a maximum core spend of £23.5m.
However, the amount which is eligible for the IFTC remains capped at 80% of £15m – leaving the maximum cash incentive available £4.77m.
Why has this been done?
In essence, this stops there being a ‘dead zone’ of budgets between £15m and £23.5m whereby the production would receive less incentive (under the standard Audio-Visual Expenditure Credit) despite spending more money than a low budget film.
Those films can now still access the IFTC level of credit, which will be higher than it would be under AVEC, but will be capped on their total incentive.
What constitutes ‘core spend’ in terms of my film qualifying?
Spend that is eligible to attract the incentive is considered core spend. The existing rules around what spend does and does not qualify for the incentive are essentially unchanged under the new regime.
A vital point is that any financing costs are excluded from the budget condition for the IFTC. This is a huge boost to the independent film sector as it means that it is (essentially) the on-screen costs that will be assessed in terms of the qualification requirement rather than financing or non-screen costs such as bonds and finance fees.
It is worth noting that UK core spend will be counted first towards the £15m limit; hence, the 80% cap rule will be in force for any production spending more than £12m (80% of £15m) on UK core qualifying goods and services.
What about the creative connection condition regarding qualifying director and scriptwriter requirements?
We already knew that in order to qualify for the IFTC, other than being a qualifying co-production, a film would need to have a director or scriptwriter who was a UK citizen or ordinarily resident in the UK. This remains unchanged.
The Statutory Instrument has clarified the requirements if more than one person is employed or engaged in either role.
In that scenario, to qualify the scriptwriter or director must be the ‘lead’ scriptwriter or director, defined as someone whose contribution to the film is equal to or greater than the contribution by any other person employed in that role.
As part of the application process, a written explanation of why a scriptwriter or director is the lead must be submitted to the British Film Institute (BFI) / Department for Culture, Media and Sport.
There is also a requirement for the contract(s) of employment for the lead scriptwriter or director, plus any additional scriptwriters and directors, to be submitted as part of the application process. This will allow the BFI to use information as to the responsibilities detailed in the contracts to assess the written explanation provided as to why a person should be considered the ‘lead’.
What extra information do productions need to provide?
As part of the application for a Certificate of a Low Budget Film, additional information must be provided to the BFI beyond that required for the standard Cultural Test – namely:
- The total cost of film by category (cost report), broken down into core expenditure and non-core expenditure;
- For the person claimed on the creative connection condition:
- Name;
- Role;
- Explanation as to why they are the lead scriptwriter or director;
- Employment contract for that person;
- If multiple directors or scriptwriters, the contract of employment for all directors or scriptwriters; and
- If a scriptwriter, the Chain of Title showing that the rights sit with the production company;
- A statutory declaration confirming the veracity of the application; and
- An accountant’s report verifying the core and non-core spend breakdown and that the person in the creative connection condition satisfied the citizen/ordinary resident requirement.
When will the IFTC take effect?
The Statutory Instrument takes effect on October 30, 2024, at which point the BFI will be able to issue guidance and begin to accept and assess interim applications.
Does that mean I can claim as soon as I get my certificate?
No – April 1, 2025 remains the first date that claims can be made for the enhanced credit – see our article on the main elements of the IFTC here.
If you have an interim certificate issued under the AVEC regime, you can make a claim under the standard rate and then amend the claim after April 1, 2025 to receive the ‘top up’ to the enhanced rate.
If you are planning to go down this route, please do reach out to us for advice to ensure that you follow the correct process and do not jeopardise the potential uplift.
Will an increase in applications delay the time it takes to get certificates and incentive claims?
The BFI, which administers the certification process, has recently expanded its team in order to reduce the turnaround times, which have been dropping. This was done in anticipation of the IFTC; therefore, we are hopeful that turnaround times will not increase. It currently takes around 14-16 weeks to receive a certificate, down from 20 weeks earlier in the year.
In terms of paying out the credit, HMRC turnaround times remain six to eight weeks and there is no indication that this will increase as a result of the IFTC. From an HMRC perspective, this is not a new relief to administer, but rather an additional strand of the existing AVEC, so the impact should be limited.
Given that there will be a number of applications ready and waiting to go on April 1, 2025, there may be a short-term slow down in incentive payments by HMRC before a return to standard turnaround times.
What does this mean for producers?
There is a lot to be positive about with the final formation of the IFTC. The budget condition allows for more wide-ranging access to the credit, and the creative connection condition criteria have been made clear, with the bar to meet them now set.
If you’d like to know more about these changes or how to access the IFTC, please don’t hesitate to get in touch with me, Lloyd Gunton, Director of Creative Sector Tax Reliefs at FLB Accountants (an Entertainment Partners company).
As a UK-based accounting firm with expertise in media and entertainment accounting, tax and tax incentives, finance, and accounting, the FLB team can provide film and TV tax credit incentive estimates and formal opinions to lenders, manage tax credit claim submissions, work with producers to advise on and finalise budgets and provide deal close support for both independent and multi-party financed projects.