Financing a film tax credit involves leveraging the value of tax incentives offered by governments (typically at the state, provincial, or national level) to help fund the production of a film. Tax credits are a common way to offset production costs, but they usually can’t be accessed until after the film is completed and audited. To address this delay, filmmakers often use tax credit financing as a way to receive funds upfront.

Film tax credit financing is a process where filmmakers secure upfront capital by borrowing against the anticipated value of tax credits they will receive after the completion of the film. This financing method helps filmmakers cover a portion of their budget before the tax credit is officially paid out by the government.

1. Pre-Certification: Filmmakers apply to the relevant government authority to confirm that their project qualifies for tax credits. This process typically involves submitting a budget, script, and details about the production.

2. Tax Credit Estimate: Once the film is certified, the government authority provides an estimate of the tax credit amount that the production will qualify for (e.g., 20%-40% of eligible production expenses).

3. Loan Agreement: Filmmakers approach lenders (like banks or specialized finance firms) to secure a loan using the tax credit as collateral. The lender will often provide an advance of 80%-90% of the value of the anticipated tax credit, keeping a margin to cover risks and costs.

4. Loan Disbursement: The lender releases the funds, which can be used to finance the film’s production. These funds often come with interest and fees, similar to other types of loans.

5. Tax Credit Claim: After the film is completed, audited, and approved, the government issues the tax credit.

6. Repayment: The tax credit amount is used to repay the loan, plus any accrued interest and fees.

Lenders: Banks, private equity firms, or specialized financiers with experience in film financing.

Producers: Responsible for securing the tax credit, estimating its value, and negotiating with lenders.

Tax Authorities: The government agency that reviews the tax credit application and issues the credit after verifying eligible expenses.

A film has a budget of $10 million, and the production is eligible for a 25% tax credit from a state government. This would amount to a $2.5 million tax credit. A lender may agree to advance 80% of that amount (i.e., $2 million) upfront. Once the film is completed and the tax credit is approved, the $2.5 million credit is used to repay the lender, with the remaining balance after interest and fees going back to the production company.

Immediate Cash Flow: Provides upfront capital to fund production without waiting months or even years for tax credit payouts

Reduced Financing Costs: Tax credit financing often has lower interest rates than traditional loans due to the relatively secure nature of the collateral.

Risk Mitigation: Lenders view tax credits as low-risk since they are backed by government incentives, making it easier to secure funding.

Lender Requirements: Lenders may require extensive documentation, such as a tax credit estimate, pre-certification from the government, and proof of other secured financing.

Costs and Fees: Borrowing against tax credits involves fees and interest, which can eat into the project’s budget if not managed properly.

Timing of Disbursement: If there are delays in the government processing the tax credit, it could impact loan repayment schedules.

Audit Risks: If the production doesn’t meet all of the tax credit’s eligibility criteria during the audit, the final amount received could be reduced, potentially leaving a funding shortfall.

1. Plan Early: Start the process of applying for tax credits as soon as possible, ideally during pre-production.

2. Work with Experts: Collaborate with accountants, legal experts, and tax credit consultants who specialize in film financing to maximize the value of your credit.

3. Use Reputable Lenders: Choose lenders with experience in film tax credit financing to ensure smoother processing.

4. Monitor Compliance: Ensure your production remains compliant with all requirements to avoid reductions in your tax credit claim during the audit.

In summary, film tax credit financing is a powerful tool for producers to access funds early, but it requires careful planning, compliance, and collaboration with experienced professionals to maximize its benefits and mitigate potential risks.

The UK offers a Film Tax Relief (FTR) scheme to incentivise film production, especially within the UK. This relief is available to films that meet certain eligibility criteria, primarily focused on promoting British culture and encouraging film production in the UK.

Here’s a detailed overview of the current rules and rates as of 2024:

1. Eligibility Criteria for Film Tax Relief (FTR)

To qualify for FTR, a film must meet the following conditions:

Cultural Test: The film must pass the British Film Institute’s (BFI) Cultural Test or qualify as an official co-production under one of the UK’s international agreements. The test awards points based on factors like British cast, crew, setting, and subject matter. A minimum of 18 points out of 35 is needed to qualify.

Intended for theatrical release: The film must be intended for theatrical release (i.e., cinema exhibition).

Production Company Requirements: Relief is only available to films produced by a UK Film Production Company (FPC) that is either:

Incorporated in the UK.

Liable to pay UK Corporation Tax.

Minimum Spend: At least 10% of the total production costs must be spent on activities within the UK.

3. Qualifying Production Expenditure

To claim FTR, only specific types of expenditure qualify:

Core expenditure includes costs related to pre-production, principal photography, and post-production.

It must be spent on goods or services used or consumed in the UK.

4. Claiming Film Tax Relief

The Film Production Company (FPC) must submit its claim to HM Revenue & Customs (HMRC) through its corporation tax return.

The relief is claimed per accounting period, with a final reconciliation once the film is completed.

Claims should be supported by relevant documentation, including BFI certification and detailed cost breakdowns.

5. Cap and Cash Benefit

The maximum relief a film can receive is 80% of its core qualifying expenditure. This means that even if the film qualifies for a higher rebate, the relief cannot exceed 80% of total core expenditure.

6. Other Considerations

If a film does not meet the cultural test or co-production requirements, it is not eligible for Film Tax Relief.

Relief is only available for films produced for commercial release; it does not apply to films made for promotional purposes or internal use.

7. Interaction with Other Tax Reliefs

FTR can be claimed alongside other UK creative industry tax reliefs, such as those for high-end television productions, animations, and video games, as long as the projects meet their respective criteria.

Example Calculation

If a limited-budget film spends £10 million on UK qualifying production costs, it would be eligible for a 25% cash rebate (25% of 80% OF CORE EXPENDITURE):

Thus, a Film Total Budget of £10 million has an estimated 90% considered as core expenditure then this would be 25% of £9 million = £2.25 million however this cash rebate is limited to 80% of core expenditure thus the actual cash rebate amounts to £1.8 million. Please contact us for a more accurate calculation.

If a larger Film has a Total Budget of £30 million and has an estimated 90% film spend of £27 million, the calculation would be:

25% of the first £20 million = £5 million.

20% of the remaining £7 million = £1.4 million.

Total relief = £6.4 million however this has a cap of 80% of core expenditure so the actual cash rebate would be £5.12 million. Please contact us for a more accurate calculation.

The UK government occasionally updates its tax incentives to ensure competitiveness with other film production hubs globally. It’s advisable to regularly check the latest guidance from HMRC and the BFI for any legislative changes or updates to tax relief rates.

For any assistance on claiming Film Tax Relief then please contact us.

Creative Sector Expenditure Credits and Tax Relief

The film, TV and video games tax reliefs have been reformed to expenditure credits.

• the Audio-Visual Expenditure Credit (AVEC) replaced the current film, high-end TV, animation and children’s TV tax reliefs on 1 January 2024
• the Video Games Expenditure Credit (VGEC) replaced the Video Games Tax Relief (VGTR) on 1 January 2024
• In addition to this, a new Enhanced AVEC for lower budget film (also known as IFTC) has been  introduced for films that started principal photography on or after 1 April 2024, which meet additional budget requirements and creative connections listed below.

Under AVEC / VGEC:

• film, high-end TV and video games are eligible for a taxable credit at a rate of 34% (equivalent to 25.5% under the previous system)
• the new Enhanced AVEC for lower budget films (IFTC) is eligible for a taxable credit at a rate of 53% (equivalent to 39.75 % under the previous system)
• Children’s TV, animated TV and animated film are eligible for a taxable credit at a rate of 39% (equivalent to 29.25% under the previous system)

Expenditure credits are available to claim from 1 January 2024. Enhanced AVEC (IFTC) is available to claim from 1 April 2025.

New productions must claim under the new expenditure credits from 1 April 2025 and all productions must claim under the expenditure credits from 1 April 2027 when the current tax reliefs will end.