Should each film be its own company?

Often, yes. A separate production company for each film keeps its income, costs, financing and risks apart, and financiers and other parties frequently require it. Whether it is right for your project depends on the funding, the rights and the tax position, and is worth deciding before development spend begins.

What is the audio-visual expenditure credit?

It is the UK tax relief for qualifying film and high-end television production, delivered as a credit based on qualifying UK expenditure. It has replaced the earlier film tax relief regime, and the rules and transition arrangements have changed in recent years. We check which regime applies to each production at the start.

What is a cost report?

A cost report compares what has been spent with the production budget, usually weekly during production. It shows the actual cost to date, the commitments still to come and the forecast to completion, and it is the document financiers, completion guarantors and producers rely on to keep control.

When is the tax credit paid?

The credit is claimed through the production company's corporation tax return once the relevant costs and certification are in place, so it often arrives after the film has been made. Many productions finance the gap, which is why the claim and the cash flow should be planned together from the start.

What do financiers expect from the production accountant?

Regular, accurate cost reports, a clear audit trail for every payment, bank and cash flow reporting, and a final cost statement at completion. Many financing agreements also set reporting deadlines, so the accountant should agree the calendar at the outset.

Film Production Accounting: A Guide for UK Producers

Film accounting is project accounting with unusual pressure on it. Every production is a business that is created, funded, spent, delivered and closed in a few years, usually with several financiers, a tight budget and tax credits that depend on getting the paperwork right. A producer who has the money side under control has more room for the creative one.

This guide explains how accounting and tax work for UK independent producers, from setting up the production company to the final cost statement, and what to ask a production accountant.

The production company

Most independent films are made through a company set up for that production. This special purpose vehicle holds the rights, contracts with the cast and crew, receives the finance and carries the costs, so the film's money is kept apart from the producer's other activities and from other films.

A new company should be set up with the accounting in mind:

its bank account and approval rules, so that payments need the right sign-offs;
its VAT registration, which is often wanted early so that tax on costs can be recovered;
its financial year end, which affects when a tax credit can be claimed;
its chart of accounts, built around the budget's categories so that cost reports line up with it;
and its financing documents, which set reporting duties and sometimes the accountant's role.

The budget and the cost report

The budget is a plan; the cost report is how you know where you stand. During production the production accountant typically produces:

Weekly cost reports, showing the budget, the cost to date, the commitments not yet paid and the forecast to complete for each budget line.
Cash flow forecasts, showing when money comes in, when it must go out and whether the gap is covered.
Payment runs and supplier control, with approvals, purchase orders and a record of each commitment.
Payroll for cast and crew, with the right employment treatment for each.

The goal is no surprises: if the production is heading over budget, the report should show it with enough notice for someone to act on it.

Financing and cash flow

Independent films are financed in layers, and each has its own accounting. Typical sources include equity from investors, pre-sales and distribution advances, soft funding, loans, and finance against the expected tax credit. Together they decide when money is available and when it must be repaid.

The accounting needs to track:

what has been drawn from each source and what remains available;
the conditions attached to each drawdown and whether they have been met;
interest and fees on any loan or bridging finance;
the tax credit cash flow gap, if costs are funded before the credit is paid;
and the completion guarantee, where one is in place, with its reporting and control requirements.

A weekly cash view, alongside the cost report, is what lets a producer say with confidence whether next week's payroll is covered.

The audio-visual expenditure credit

UK production tax relief for qualifying film and high-end television is now delivered through the audio-visual expenditure credit. It replaced the earlier film tax relief regime, and the rules and transition arrangements have changed in recent years, so each production needs to be checked against the regime that applies to it.

In outline:

the production must be certified, including passing the cultural test;
the credit is based on qualifying UK expenditure, so the accounting needs to separate UK and non-UK spend and show what qualifies;
the claim is made through the production company's corporation tax return;
and the cash usually arrives after the costs have been incurred, which is why many productions finance the wait.

Many errors on claims come from poor records rather than poor tax advice: missing invoices, costs coded to the wrong place, or UK and overseas spend not separated. An accountant who sets up the coding properly before production begins saves effort and reduces the risk of an enquiry.

Payroll, freelancers and VAT

Film crews are a mix of employees, freelancers and people working through their own companies, and the correct treatment of each is a common source of problems.

Employment status. Cast and crew need to be treated correctly for PAYE and National Insurance, and the position needs to be checked person by person rather than assumed.
Payroll for short engagements. Productions run payroll weekly and for short periods, so the process must be quick and accurate.
VAT. Costs from UK and overseas suppliers, location work and equipment hire each have their own VAT treatment, and recovering it quickly helps cash flow.
Union and guild payments. Where they apply, agreed rates and residuals need to be tracked and paid correctly.

Delivery and after

When filming ends the work shifts rather than stops. The production accountant:

closes out supplier accounts and agrees final costs;
produces the final cost statement that financiers and the completion guarantor expect;
supports the tax credit claim with the expenditure analysis;
and prepares the statutory accounts for the production company.

After release, income from sales agents and distributors comes in against a pre-agreed order of payment, often called the waterfall. Statements from sales agents need to be checked against it, because small errors compound across several parties.

Choosing a film accountant

Ask a prospective accountant:

How many independent productions have you worked on, and at what budget level?
Can you produce weekly cost reports in the format our financiers expect?
How would you set up our chart of accounts so the tax credit claim is straightforward?
How do you manage cash flow when the tax credit is paid after the costs?
Who handles payroll, VAT and employment status questions?
Do you work with completion guarantors and sales agents?
Who will actually work on our production?
Which professional body regulates you?

Working with Tributom Advisory

Tributom Advisory is an ICAEW-regulated practice. For film producers and production companies we provide tax, accounting and CFO services from development to delivery, including the set-up and running of production companies, cost reporting and tax credit claims.

Accounting for film producers: production companies, tax credits and cost reports