The British filmindustry has been left in a state of shock following the surprise announcementthis week that tax authority the Inland Revenue is pulling down the"guillotine" on the UK's tax equity funds.

Veteran producerJeremy Thomas warned that the move would have "major implications"for employment in the UK industry.

Pointing out thatup to £200m ($375m) in production volume is likely to be lost, Thomassaid the "the whole infrastructure of the film industry has been rampedup" to cater for the boom in production and that post-production houses,studios, labs and even training initiatives are all now set to suffer.

Films left in thelurch by the announcement include the Johnny Depp starring feature TheLibertine, which is due to shoot this month at Ealing Studios and RubyFilms' Tulip Fever directed by John Madden. "We're in limbopending clarification of what this statement means to us," arepresentative of Odyssey Films (which is packaging The Libertine) told ScreenInternational. She added that - as matters stand - Odyssey will not beable to meet its "payroll obligations" this Friday for the film.

The UK FilmCouncil - which appears not to have been consulted about the Revenueactions - is holding a crisis meeting with the tax authority today."We want to protect films going into production with complex co-financingarrangements that were put into place in good faith with bona fide industryinvestors before the changes were announced," said Film Council boss JohnWoodward.

Some sources suggestedthat the revenue's ire had been provoked by the recent establishment ofnew P&A funds through which the British tax-payer was "effectivelysubsidising" the release of US studio films. "But this is a case ofthrowing out the baby with the bath water," Revolution's AndrewEaton commented.

"Thecurrent situation is deeply perplexing," Chris Auty of Civilian Contentsaid. "It is going to affect precisely those films which the industryagrees needs to be supported: that's to say not the small arthouse filmsthat can be filmed by a broadcaster and a bit of lottery money, but the£10- £20 million movies that have big casts and genuineinternational sale-ability."

The pain of theannouncement has been further exacerbated by the strength of the pound against thedollar - and the likely exodus of US production from the UK as a result."The American companies are going to think twice about Britain as a taxhaven, even if things get restored," Simon Perry of Ingenious said.