Clause 16 - Film tax relief: films produced to be television programmes

Finance (No. 2) Bill – in a Public Bill Committee at 10:15 am on 14 December 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Christopher Chope Christopher Chope Conservative, Christchurch

With this it will be convenient to discuss new clause 14—Review of effectiveness of film tax relief provisions of Act and of potential for misuse—

“(1) The Government must publish, within six months of this Act coming into force, a report on the effectiveness of the provisions of section 16 of this Act.

(2) This review must include an assessment of the extent of, and potential for, misuse of the relief provided in section 16.

(3) The assessment under subsection (2) must include an evaluation of the relevance of the experience of misuse of existing film tax relief.

(4) The evaluation provided for in subsection (3) must include—

(a) the—

(i) total number of enforcement actions, and

(ii) number of successful enforcement actions taken against companies suspected of misusing film tax relief,

(b) the actions taken against the promoters of schemes designed to enable misuse of film tax relief, and

(c) a statement as to the plans the Government has for further action against misuse of film tax relief.”

This new clause would require a review of the effectiveness of the provisions in section 16. This review would include assessing actual and potential misuse of the relief, drawing on experience of the present film tax relief regime.

Photo of Lucy Frazer Lucy Frazer The Financial Secretary to the Treasury

Clause 16 makes changes to the film tax relief to give added flexibility to film producers who might decide to change their distribution method. The Government are ensuring that film producers can claim the film tax relief for films that are broadcast or streamed rather than released in cinemas, provided that the film meets the criteria for high-end television tax relief.

There is an imbalance between release for film and TV where some films that are no longer intended for a cinematic release and switch to streaming lose eligibility for tax relief. The distribution landscape has changed significantly since the introduction of these reliefs, and more films are released directly to video on demand services. This trend has accelerated recently due to the covid pandemic.

The changes made by the clause to the film tax relief will provide greater certainty for producers, ensuring that relief is not lost should a company decide to change its distribution method. This will help ensure that the UK remains an attractive place to invest and encourage the production of culturally British films.

New clause 14 would require the Government to review the effectiveness and potential misuse of clause 16 within six months of the Act coming into force, and would include within it an evaluation of misuse of the film tax relief. That evaluation would include the total number of enforcement actions, and the number of successful enforcement actions, taken against the companies suspected of misusing film tax relief.

The Government oppose the new clause on the basis that it is not necessary, as the Government are already monitoring and evaluating the success of their tax reliefs. This follows the structured approach to evaluating tax reliefs that HMRC began in October 2020 as a general good practice policy approach. HRMC has contracted an independent research agency to evaluate the screen tax reliefs, including film tax relief and high-end television tax relief. That evaluation aims to provide a thorough and independent evaluation of the reliefs, including their effect on employment and business growth. The impact of clause 16 will be noted as part of the evaluation, which is expected to be published next year, although that evaluation will not cover misuse of the relief. The requirement in new clause 14 that a review of clause 16 be published in six months is also impractical, because the measure only comes into effect for accounting periods ending on or after 1 April 2022. It is likely to be at least a year before companies make claims in relation to clause 16, and even longer before enforcement action is taken.

It is also worth noting that HMRC is taking actions to clamp down on the abuses that the new clause is concerned about. The current film tax relief was introduced in 2007 to replace film partnership reliefs. It is a corporate relief, and now focuses on film producers, not on investing partnerships. HMRC continues to settle and litigate historic schemes related to the old film partnership reliefs, but the current regime has not been subject to the same abuse, and has had a positive reputation in the industry.

The corporate film tax relief has proved very successful at attracting inward investment. It is highly popular with film-makers, and has contributed to making the UK a top film-making destination. This new relief is well targeted and has not been subject to abuse like the previous scheme. The change made by clause 16 is therefore to support businesses that meet the qualifying criteria for the relief, and while HMRC will remain vigilant regarding any emerging risks, we do not believe that clause 16 poses any significant additional risk. Further, reviews and disclosure of enforcement action statistics as requested by the new clause would not be useful. As such, I urge the hon. Gentleman to withdraw it.

The changes made by clause 16 will help ensure that the film tax relief continues to support the UK’s thriving film-making scene. I therefore commend it to the Committee.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

As we have heard, clause 16 allows films to remain eligible for film tax relief even if those films are no longer intended for theatrical release, provided they are intended for broadcast and meet the four conditions required for high-end television tax relief. The clause is effective for accounting periods ending on or after 1 April 2022. We do not oppose measures that support the entertainment and hospitality industry, particularly given the ongoing challenges brought about by the covid-19 pandemic. Indeed, the measures contained in clause 16 are, in themselves, sensible and appropriate.

More widely, though, we are aware that film tax relief was introduced by the Finance Act 2006, and applied only to films intended to receive theatrical release. That intention must be met at the end of every accounting period. Similarly, high-end television tax relief was introduced by the Finance Act 2013, and allows companies to claim relief on television programmes so long as they meet certain conditions.

The intention to broadcast must be met at the outset of production activities, and is then treated as being met for the remainder of production activities, regardless of the intention for the programme. That raises the possibility that a film that was initially intended for theatrical release may miss out on either relief if the intention changes part-way through production, and it is instead planned to have a television release. This is the case even when such a film would have been eligible for television tax relief if the decision had been made at the very start of production activities. Clause 16 ensures that where a film would have been eligible for high-end television tax relief if not for the date that the broadcast intention was decided on, it will not miss out on that relief, but will be eligible to claim it.

I am sure that the measures in this clause will provide welcome relief to those in the film industry. However, we would like to take this opportunity to ask the Minister about the operation of the film tax relief more widely, which is a debate that our new clause 14 seeks to encourage. Looking back briefly to 2014, the Public Accounts Committee reported on the misuse of tax relief, including the film tax relief, to which it made explicit reference. The report found:

“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction….Tax expenditures are often alternatives to spending programmes, but are not managed or evaluated as closely…The Departments do not keep Parliament adequately informed of changes in the costs of reliefs…The Departments are unable to cope with the demands of an increasingly complex tax system, including tax reliefs…The Departments do not respond promptly to unexpected increases in the costs of tax reliefs. Data on movements in the cost of reliefs is not available until tax returns are received, and HMRC takes time to react when it notices a cost increase, as it wants to ensure its response is appropriate. However, a longer elapsed time in reacting to an increase in the cost of a tax relief raises the total amount of public money at risk. In the case of film tax relief, it took ten years to resolve the problems and cost over £2 billion.”

I am aware that the operation of the film tax relief has been changed in recent years, but it is important to ensure that the tax relief continues to be effective. We need the Government to reassure us that they are taking adequate action against the possible misuse of tax reliefs. With that in mind, we tabled new clause 14, which would require the Government to include an assessment of the extent of, and potential for, misuse of the relief provided in clause 16. That assessment must also include an evaluation of the misuse of existing film tax relief more widely.

In relation to that wider potential misuse of existing film tax relief, our new clause requires the Government to set out, first, the number of total and successful enforcement actions taken against companies suspected of misusing film tax relief; secondly, a report of what action has been taken against the promoters of schemes designed to enable to misuse of film tax relief; and thirdly, what plans the Government have for further action against the misuse of film tax relief in the future.

The Minister has set out that she will not accept our new clause, but I ask her to commit to a firm timetable for a review of existing film tax relief that would have a similar effect. There are already reports suggesting that the use of film tax relief is increasing. I remind her that the 2014 Public Accounts Committee report said that

“Departments do not respond promptly to unexpected increases in the costs of tax reliefs.”

If the Minister will not commission a review along the lines that we have suggested, I would be grateful if first she could reassure us on the record that she does not believe that there are significant levels of misuse of film tax relief. Following the point that she made earlier, I would be grateful if she could also explain what the timetable is for the publication of the evaluation of film tax relief. If she does not have that to hand, could she write to me before the recess?

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury)

I am more than happy to support what the Government are proposing here. Consistency in these tax reliefs is really important to allow businesses to plan. My constituency particularly has a booming TV and film production sector, with the recent announcement of the BBC Studioworks development at Kelvin Hall in my constituency, and an £11.9 million investment, £7.9 million of which is coming from the Scottish Government to invest in the high quality TV and film production in Glasgow.

It is important to acknowledge the wider picture. This is not just about one tax relief; it is about the wider ecosystem. We have lots of independent production companies in Glasgow Central, and more widely in Glasgow, working away and producing high quality stuff. We have post production as well in companies such as Blazing Griffin, which does high-end stuff for the likes of Netflix. However, I would be doing them all a wee bit of a disservice if I did not mention the significance of Channel 4, and the importance of keeping it in its current model and standing away from the plans to privatise it. That model is what supports the wider ecosystem in the city of Glasgow—the model where independent production companies are able to keep their intellectual property and products, and sell them. That allows all the certainty within the sector to continue.

As I said, the issue is not just about this one tax relief; it is about the Government looking at and acknowledging the wider ecosystem that supports independent production within Glasgow. Companies such as Blazing Griffin have pointed out to me that, were it not for Channel 4, we would not have Netflix. One thing in the ecosystem depends on another, and I urge the Government to look at that in the round when it considers such tax reliefs. Where tax reliefs have been withdrawn or changed in the United States, all that happens is that production companies lift and shift, and go elsewhere. We do not want to risk doing that with such changes as those that the Government propose for Channel 4.

Photo of Lucy Frazer Lucy Frazer The Financial Secretary to the Treasury

I will briefly respond to the points made by the hon. Member for Ealing North. There are four short points: first, I hope the hon. Member has taken some reassurance from the fact that I mentioned that the current regime is not subject to the same abuse as the historic regime. Secondly, I mentioned that we were doing an independent review of reliefs. Thirdly, he asked me for the timing of that project. It started in May 2021, and we expect the project to be finished and to have written a report before the end of March 2022, for publication later in the year.

The hon. Member also mentioned avoidance quite a lot; we are also interested in tackling avoidance, and we will be coming to, later on in this Committee, a whole raft of measures tackling promoters. I am sure that he will welcome those.

On the point that the hon. Member for Glasgow Central made, I am very pleased to see that there are thriving creative industries across the UK. She makes an important point about how we need to look at the industry as a whole, but it would be stretching things slightly to include a debate about Channel 4 within the confines of this Bill.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.