Using Film production costs as a tax loss - UK
Just to start, I'm not looking for dodgy loopholes or tax avoidance schemes, I'm just don't know where I stand.
I am self employed and get a fair bit of freelance video work (including directing, producing, editing and camera oping) thanks to my showreel and depth of work. I regularly spend a lot of my own money creating my own short film projects firstly for the love of film, and secondly as a way to further my own professional position (I am aiming for the director's chair).
Consider that the films I make are made with the purpose of hands-on-training and a form of advertising for my skills, can the money I spend on their production be counted as losses in my tax returns?
In this way I am comparing the short film to be equivalent to some professional training or as, say, an advert at the side of the creative cow blogs.
I should mention I live in the UK.
Does anyone have any thoughts, advice, or links on the subject? Any input would be greatly appreciated.
I know nothing of UK tax law, and not enough of US tax law, by a long shot, but that's never stopped me from having an opinion about something before. :-)
The opinion is, some things you do *may* be deductible as educational expenses related to a profession. And some *may* be deductible if they were commercial projects that failed in some way and left a loss, like any other failed business venture.
I think the questions you might want to ask a tax expert are: Is any of the work you did as self-learning, a deductible educational expense, and can you deduct for losses on a project that didn't actually have a paying client? I'm going to guess that the educational credits only apply to accredited teaching institutions and programs, and probably not to auto-didacts working at home.
When you yourself are the paying client, I think it's likely the revenue service people won't accept losses as a deduction, just by Occam's Razor, since everybody shooting a home movie would then be applying for the deduction. You'll have to shoe you invested real money, also, while they do have some kinds of deductions for video production in the States, the last time I looked at it, the bar for getting anything back was pretty high, meaning, you really took a bath on the project.
Thanks Mark, thats a very helpful view.
I imagine there would need to be a certain level of professionalism and quality in the short film - perhaps if it were to be accepted into a festival or two that would make it a quantifiable advertising expense (in advertising me as a filmmaker)?
Perhaps a large enough budget would also be needed, to separate it from home movies.
Thanks again Mark, it's good to be able to narrow down the questions to ask a tax expert rather than the vague idea of filmmaking as a tax loss.
Another "I'm not a lawyer nor do I know a thing about GB laws" -
But it's certainly interesting that the term "resume film" - or "resume video" has become so popular in the past few years.
As a term of art, it's understood in our business that we often produce work, not for direct financial gain, but to demonstrate our capability and proficiency and therefor to qualify for paid work.
In the classic sense paper based "resume" expenses (understood to be work done specifically to secure employment int ones field of expertise) ARE often fully deductible under US tax law.
Be interesting to see someone make a case someday that the time, effort and money put into production a resume video - be similarly fully deductible.
Not saying it IS. Just noting that there may not actually be a whole lot of fundamental difference between a paper resume and a resume video.
Know someone who teaches video editing in elementary school, high school or college? Tell them to check out http://www.StartEditingNow.com - video editing curriculum complete with licensed practice content.
Illinois offers great tax breaks for productions that come here, but I think they don't kick in until you've spent 500 thousand, or some such figure. It's not meant to be "money for nothing", but an incentive to get big productions to come in and spend locally, versus trucking all their people and gear in from the coasts. We have world-class facilities, locations, and craftspeople here already, largely based around the advertising industry, historically, but branching out all the time. The state in effect becomes a silent partner in the production. They want to see the movie or TV show succeed, and local craftspeople make a living from working on those productions.
OK, I'll chime in with similar advice and the same caveat about tax law in general and UK tax law in the specific.
Seems to me that if you are operating a viable business that buys supplies and outputs work then any supplies or costs you have for your show reel are just part of your overall expenses of doing business and therefore would lessen the taxable portion of your income.
AGAIN, don't know about UK law, but here in the US you simply can't deduct anything for your time because that's not considered a real expense.
Ignore all the out-of-townie-experts and listen to someone who have been through the British Tax meat-grinder (and still is enjoying it) ;-)
One disclaimer to my opinion below: If in doubt get an accountant, although such can be expensive they are to spare you from fines, jail and paying too much tax!
Are you a registered self employed person with the HMRC?
Do you invoice multiple clients for your services? (If you only have one client, they must pay you PAYE and offer you things like holiday pay and pension)
Do you pay your own National Insurance?
Do you file your own income accounts?
Provided that you are a professional working in the business of making videos and films, there are a number of things that you can legally claim expenses on for production purposes. Such as R&D, phone calls, insurance, transport, hire of equipment, asset purchases etc. Any expense that you can prove was for the purpose of making films for business and not hobby. Just make sure to have the argument for the expense, before showing HMRC the video of your best friends wedding...
(Example: I once managed to claim tax back on a Playstation 2 - I also had a lengthy report to show how I had taken part in a research project for developing new software and hardware for it)
Although crew and actors are an expense too, I did not include those in the above list as it could be a minefield - like your customers, those people you engage to work for you, may suddenly become your employee. So be careful on that point as to who you hire and for how long. Websites like http://simply-docs.co.uk/Home are a cost effective way of getting legal forms/contracts to be modified and signed by you and your freelancers.
(Not many people knows this, but the UK employment laws are amongst the toughest in the world. Even tougher than those in places like Denmark (my home country :-)))
As a closer. In any case, you said it yourself:
[James Quinn] "Consider that the films I make are made with the purpose of hands-on-training and a form of advertising for my skills, can the money I spend on their production be counted as losses in my tax returns?"
In the UK tax system it is unlikely that a sole-trader can claim back on training and university courses unless you can prove that these are necessary for a specific project. However, it is possible to claim back some marketing and advertising expenses if those are to help you promote the business.
If in doubt, ask an accountant. Who may suggest that you set up a Limited company to protect yourself. (Do NOT do that unless you have turnover of £45K+ a year and/or very complex productions)
You could also consider signing up for an accounts package that will ask you to separate out personal and business expenses. I migrated from Quickbooks (off-line) to Freeagent (online) which is really good for managing my mixture of personal, PAYE and self-employed accounts - my referral link for it is here: http://fre.ag/42m3rdrm
Good Luck and don't hesitate to ask if there was anything that I didn't cover.
All the Best
@madsvid, London, UK
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[Mads Nybo Jørgensen] "Provided that you are a professional working in the business of making videos and films, there are a number of things that you can legally claim expenses on for production purposes. Such as R&D, phone calls, insurance, transport, hire of equipment, asset purchases etc."
As one of the "out-of-townie experts" I have to question how this is much different than what I was discussing. If your materials (hard costs) are part of your overall business logically they should be deductable. As to the video of "your best friends wedding," of course not.
[Mads Nybo Jørgensen] "I once managed to claim tax back on a Playstation 2 - I also had a lengthy report to show how I had taken part in a research project for developing new software and hardware for it"
Wow, Mads you must have undergone a rather rigorous inspection by the tax authorities or been attempting to claw back a VAT tax. Here we call the rigorous inspection an Internal Revenue Service audit where they look at EVERYTHING, and yes, in that case you are left to defend each and every expense. Ouch.
[Mads Nybo Jørgensen] " ...those people you engage to work for you, may suddenly become your employee."
In the states we have "Paymaster" companies (for actors and other "talent"). For a fee the paymaster in essence becomes the employer, witholding all necessary taxes and making union-dictated Pension & Welfare contributions. Not sure if you have anything like that there and seriously wonder if anything like that exists for crew members. Anyone know?
[Nick Griffin] " Not sure if you have anything like that there and seriously wonder if anything like that exists for crew members."
That definitely exists, although we always hire directly and have never used those services.
I have a friend who co-owned one of those companies for many years, it was called "ProCrew" (she eventually got out of the business). They provided crew members, took care of booking, payroll, insurance, all that jazz, and did union finagling as well, as they were all IATSE members. Her company mostly provided crews for stage and theatrical productions (touring Broadway shows, concerts, arena-type events) but they also provided personnel for film crews as well.
In a case like that, ProCrew was the actual employer. If you contracted with that company then none of those crew members were your employees... but rather ProCrew was simply one of your vendors.
Another guy in Atlanta (who was considered the absolute "King of Gaffers" over there for many years) went on to start a very similar company there, too.
Fantastic Plastic Entertainment, Inc.
You are assuming wrongly that I read all of your post, which I did not ;-)
Please do accept my apology for the rude oversight on my part.
Yes, I also got paid some money for my tiny work the report, which allowed me to purchase the asset. Which I assure you have never been used for anything fun...
My expenses have never been called in for investigation by the tax-man. The process for this happening in the UK is either through a random selection, or because submitted accounts didn't match the trend of the industry's tax returns (If there ever was such thing in our business).
There are firms and agencies (paymasters) in the UK that will act as the middleman when it comes to staying away from PAYE. But without intending any disrespect to James, the original poster, I got the impression that his business is small and that the budgets for his "promotional materials" are even smaller. Hence why he may not be able to afford the fees of inserting a middleman, in comparison to hiring another self-employed person.
All the Best
@madsvid, London, UK
Check out my other hangouts:
And only a few hours after you asked, chief boss accountant Emily at Freeagent released this handy guide just for you (and me):
It is a generic guide and cover most of the things that you'll want to know about allowable business costs and expenses if you're working from home. (There are a second one for Limited companies)
All the Best
@madsvid, London, UK
Check out my other hangouts: