The Stage

Chancellor’s tax threat to showbusiness investment

Published Tuesday 11 May 2004 at 15:35 by Sally Bramley

Gordon Brown’s scheme to scrap key tax incentives for the film sector has led to a loss of private investment which is already exerting a knock-on effect on the rest of the British entertainment industry, two leading showbusiness accountants have warned.

In February the Treasury closed a loophole allowing investors to effectively claim back any tax loss made on a film in excess of the amount they had put into the partnership. The rules have now been altered to allow backers to claim back only their original stake on a film - meaning the film has to make a profit for the investors to make any money.

Harry Hicks, head of film and television for WJB Chiltern, said there had been a significant downturn in the number of films being made in Britain since the loophole closed. And he added that the new government proposals would put off further private investment, thus having an even greater detrimental effect than at present.

The Chancellor intends to replace the popular Section 48 tax relief when it expires in July next year. Introduced in 1997, this provides a 100% first-year tax write-off for British films budgeted below £15 million.

However, any new incentives for film investment to replace Section 48 remain vague. Suggestions have been made of a government rebate up to 20% of the total cost of the film for producers without other backing. With some private investors currently shouldering considerably more of the cost, analysts warn the recent and planned changes are encouraging investors and producers go overseas instead.

Said Hicks: “The government plans to cut out the use of wealthy investors in financing film and 20% of the cost would be rebated by the Treasury. But that is less than some producers are getting from investors now. Some raise up to 25% but now they would only be able to get 20%. It could make a bad situation even worse but, as yet, it is too early in the tax year to tell. We shall have to wait and see what happens.”

Already several films, including The Libertine, starring Johnny Depp and John Malkovich and Tulip Fever starring Jude Law have been threatened by individuals withdrawing backing. Depp’s production was forced to cover a £4 million loss in budget and to move to the Isle of Man to take advantage of the economic benefits there.

Critics say a contraction in the number of film projects will lead inevitably to demand for work outstripping supply, with technicians and walk-on artists particularly vulnerable. Walk-on campaigner Clive Hurst said the drop in the number of film jobs available for performers would lead to an influx in the television market, leaving fewer jobs to go round.

He warned: “The problem is you get agencies who will take on as many people as they can but give out one or two jobs just so they can justify their booking fee. There are already problems getting paid the proper Equity rates and companies will take on anyone at all. It could end up demolishing everything. Unless we set a standard, you can’t expect a profession.”

Showbusiness accountant Robert Breckman, whose clients work in film, television and theatre, said the danger was not only that other sectors of the entertainment industry would suffer the knock-on effect from film. It was inevitable that the Exchequer would soon turn its attention to live entertainment.

He said: “The perks available to investing in theatre are bound to be looked at. It’s the logical sequence of events which may not be of benefit to theatre. The government has already moved the goal posts over films, so we should gear ourselves to be ready for our turn.”

Ironically, as the Chancellor moved against the screen tax loophole, one of the West End’s leading owner-impresarios delivered a demand in The Stage for tax breaks similar to those then had in the film industry. Andrew Lloyd Webber said young producers in the West End were already struggling against ever increasing pressures, including the subsidised sector, which was better placed to offer more favourable contracts to actors.

Breckman warned the decreased promise of return on an investment would make private investors unwilling to take risks with productions, leading to economically-motivated censorship, as well a reduction in salaries available to cast and crew.

Added Breckman: “We are waiting for Gordo, but we are hoping he doesn’t turn up because we can’t afford to pay him.”