UK film industry should look to tax credits to maximise cashflow before recession bites

As economic turbulence leads to falling consumer spending, businesses in the film industry should take advantage of funding sources such as film tax credits. This valuable source of capital can result in more robust, consistent cashflow which can make the difference between surviving and thriving, argues Freddie Digby, CCO of Adsum.

The last few years have been some of the toughest for the UK economy. A global pandemic, supply chain woes, inflation, and now a possible recession means consumer and business confidence is at record low.

This inevitably impacts consumer confidence, and therefore, the businesses that rely on excess cash being spent on non-essential leisure activities and items. It is one of the reasons why the Federation of Small Businesses estimates that 500,000 businesses plan to downsize or close entirely this year.

After years of economic boom and a pandemic-related surge in consumers spending on entertainment, the UK’s film has largely been insulated from the above concerns that have plagued other industries. However, this might soon change; as essentials become more expensive to purchase, unnecessary costs such as a Netflix subscription, for example, are quickly seen as expendable. Hence, Netflix lost 200,000 subscribers in the first quarter of 2022 alone and subsequently promised a cheaper subscription option that swapped high fees for advertisements by the end of the year.

To protect themselves from falling consumer confidence and a looming recession, rapidly scaling businesses in this industry should look at the key advantages they have due to operating in the UK: most notably film and TV tax credits.

Thanks to these generous incentives, eligible producers can get 25% of their core UK expenditure as either an additional tax deduction (if in profit) or cash (if not yet profitable).

Freddie Digby, CCO of Adsum, discusses the UK’s film industry, their lasting success, and what they can do to ensure it continues:

“The British film sector is world leading. The UK has hosted the creation of some of the biggest TV and film productions and will continue to do so; the government’s incentives have played a large part in this.

“However, after months of doom and gloom in economic forecasts, the economy may well enter even stormier waters. Here, cashflow will be a significant concern – and businesses will need to be smart to ensure capital is available when their business needs it.

“Production companies, studios, and other businesses in this industry have a notoriously lumpy cashflow. One of the few key stable sources of funding is the end of year tax credits, which takes businesses days to submit and HMRC up to 6 months to pay out.”

Freddie continues: “Alternative financing such as tax advances can provide a lifeline, particularly in times as complicated as this – with alt-fi fintech’s using technology to calculate the number of tax credits due and providing it when it is needed (not when HRMC gets round to do it). In an industry and economic environment as turbulent as this, such rapid and dependable services offer a great opportunity for businesses in this sector.

“As it is such a great advantage for operators in the UK, and as the film is so valuable to the UK economy, these new services should not be over-looked.”