Let’s Talk Tax Credits

OK, taxes, boring I know, but it’s a pressing matter for animators in the UK. It’s also a topic that’s come up from time to time over here in the States, as places like next door neighbour Canada create incentives to get studios to move up north.

So the reason for this latest round of noise-making is that the British government is considering a tax break for “drama productions” that cost a certain minimum per hour of screen time. The thinking goes that with such a break, more productions will begin shooting in the UK thus contributing to the economy.

Animators contend that their industry would be more effective at keeping jobs in the country and, according to the Guardian article, would keep content on a more local level.

There’s nothing wrong with this, except that the reasoning is a bit flawed.

Basically, Ireland, the UK’s neighbour, offers tax incentives for animation production. The reasoning is is simple for this one: Ireland didn’t have an animation industry, so in order to get one jump-started, the government offered companies a tax break in return for taking the risk of setting up in a relatively unknown country (animation-wise).

The UK already has an established animation industry. It doesn’t need to effectively subsidies companies’ risk in setting up production there.

So what’s the real issue here?

Well, why set up shop in the UK, when you can go next door to Ireland, write off some taxes and get you series done for less. Right?

Will tax incentives in the UK change this scenario?

The answer is maybe.

Tax incentives will bring the cost of production in the UK down, but that is not a guarantee that productions will move there. It also creates another problem in that it hides the real issue: costs.

Naturally with their tax incentive, Ireland can operate on a lower cost basis, but, can you continue to operate on an incentive-based structure forever?

NO!

Incentives are meant to be temporary, or rather, short term. Long term reliance on tax-breaks and incentives can defeat the purpose. For example, let’s say you introduce a tax break for animation. After a while, another country introduces a tax break that brings their costs below yours. Now what do you do? Another tax break? Suffer the consequences? Give up?

Tax incentives mask the real cost of doing business. Yes, taxes may be higher here or there, but at the end of the day, they should be factored into the cost of doing business in the first place. Exchange rates will also factor into the equation, and depending on where you go, they may have a bigger bearing on costs than taxes.

If costs are your problem, then perhaps it is wiser to try and bring them down first, no? By doing so you will increase your competitiveness and not have to worry about it running out.

Besides, if you operate as a low-cost producer, you will always have to be the low-cost producer. Ireland has shown that they can move beyond low-cost with through their superb, home-grown content. Britain has a great track record in creating content. Perhaps they need to rediscover that talent.

What do you think? IS the UK really in need of a tax credit, or should it try other things first?

 

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