The whole of the British film industry was holding its breath this week waiting for any detail of changes in the tax laws relating to film production finance.

The Chancellor announced last year that he was eliminating the popular section 48 relief and sale and lease-back for all productions starting after March 31 and replacing it with a tax credit system which in theory is intended to benefit the producer rather than an investor.

There has been a mad rush during the last three months to start production on as many films as possible!

Mr Brown is sticking to his guns, but, unfortunately, the Revenue and Treasury has not explained fully how the tax credit system will function in practice.

The tax credit is a repayment by the Revenue to the producer after the film has been completed of 20 per cent of the amount spent on UK costs.

The problem of course is that the producer needs to cash flow the full amount of the tax credit as part of the financing of the film and there is no clear view as to how this will happen because the Treasury hasn't explained the rules.

I have no doubt that there's a very lucrative business to be had by banks and other financiers in discounting the value of the tax credit and possibly securing a net profit position in the film.

By the time the financier has taken its discounting fee and interest, the producer will probably benefit to the tune of 15 per cent of the British spend, not the 20 per cent that the Government had intended. The outgoing system of sale and leaseback, which was popular with producers and investors, netted the producer 15 per cent of the whole budget (except financing costs) which was actually more beneficial in my opinion.

We have been approached by film finance funds who have raised money under the so-called GAAP (Generally Accepted Accounting Principles) system.

This is where investors make a capital investment into a film and use accounting rules to gain tax advantages. This has been used successfully in the past and the funds are currently offering an average of 25 per cent of a film's budget. This type of funding, together with the tax credit could net UK productions up to 40 per cent.

In the meantime, we are also negotiating on several American films which are being financed by equity funds which have been raised on the back of new tax legislation there.

Section 181 financing is based on our very own Section 48 financing which has just been abolished here!

Funny old world when the world's leading film industry receives financing from a tax relief inspired by Britain. All that's going to happen is that the US industry will become stronger and, with all the confusion surrounding tax relief in this country, the British industry could suffer a dip in the next 12 months.

Fortunately from a selfish point of view, most of Intandem's film projects are currently originating from North America.

* Gary Smith has his home in Birmingham and is boss of Intandem.