It Doesn’t Need to be Taxing
The animation tax-break, how do you qualify, how does it work and how will it affect your business?
Blogged by Niel Bushnell.
“The discussion covered all the key elements of claiming Tax Credit. The participants were experienced and knowledgeable, and gave us a good perspective on the process.” Ken Anderson, CEO – Red Kite Animation
“The Tax Credit is very welcome but I hope it isn’t used to plug the gap in declining Broadcaster budgets, otherwise the industry will be in a similar difficult situation again.” Helen Howells, Joint Managing Director – HoHo Entertainment
Top 10 Take Outs:
- The Tax credit is calculated on a points-based system. Points means credits!
- Qualifying projects need to be for broadcast, but broadcast doesn’t have to mean BBC or ITV, it can be the internet.
- Points are allocated for various criteria, both in front of and behind the camera.
- The project doesn’t need to be set in Britain, although it does help.
- The application is quite straightforward.
- The system is new, so it will bed down more over the next 18 months.
- Broadcasters have seen people struggling for funding, so the tax credit is very timely.
- You need to set up an SPV (Special Purpose Vehicle) company to funnel the funding through.
- The sooner you set up the SPV the better, so as not to miss out on potential credit.
- The tax credit system works well with EU MEDIA funding.
We’ve been hearing about tax breaks for the animation industry for years but many of us, including myself, never thought it would actually happen.
In the time we’ve been debating this new system, the industry has suffered as more productions move to more favourable territories. This makes the timing of the tax break vital. I’ve dipped my toe into the co-production viper pit, but I can’t claim to be an expert on finance or tax incentives, but even I could understand the basic criteria needed to qualify for the tax credit.
It’s deceptively simple and yet broadly flexible. As contributor Oli Hyatt said, “as long as you’re sensible you should qualify.” He admitted that it takes him longer to explain the application form than it does to fill it in. Using information from his series bible he claims the form took only an hour to complete. Obviously there will be other work needed by your accountant and lawyer but it seems the bar to application is much lower than many of us presumed.
There are legal requirements to all of this, so expect to be paying for your Lawyer’s holiday in Cannes, but it seems to be worth the effort. It’s important that you are the lead co-producer with creative control, and that you set up an SPV to filter the funding through to the producers and contributors, so seek advice on how to do this. And if your current accountant doesn’t have experience in this new area then find one who does. The film credit system has been up and running for a few years, and the animation system has its origins in that process, so competent experienced consultants are out there.
And the good news is that the UK tax credit for animation is compatible with EU MEDIA funding and EIS funding, so you’re not losing out from another pot by taking advantage of this new system.
There was a debate about the response from other countries to the UK’s tax system. Already we’re seeing moves by Australia and Ireland to increase their tax breaks to help protect their own industries. Could we see a tax credit war that might force the UK to increase their offering? No, according to Anna Mansi, Head of Certification at the BFI. It’s too soon to expect such an admission, but perhaps that might change in a few years time if this new tax credit’s worth is eroded by other territories.
Another concern raised was the fall in Broadcaster funds. As they become smaller would the tax credit merely become a hole filler, leaving the producer with the same small pot they had before?
Only time will tell, and it’d be interesting to see a follow-up session to this at a future CMC.
Ken Anderson, CEO – Red Kite Animation
Oli Hyatt, Managing Director – Blue Zoo
Andy Ledger, Relationship Director – Barclays
Greg Lynn, CEO & Executive Producer – Adrenalynn Entertainment
Anna Mansi , Head of Certification – BFI
Sarah Muller , Head of Acquisitions and Drama Development – CBBC
Michael Rose, Co-Founder – Magic Light Pictures
Helen Brunsdon, Animation Producer and Consultant
Sarah Muller, Head of Acquisitions and Drama Development – CBBC
Red Kite Animation
CEO & Executive Producer
Head of Certification
Head of Acquisitions and Drama Development
Magic Light Pictures
Animation Producer and Consultant
Head of Acquisitions and Drama Development