From 1 January 2024, the audio-visual expenditure credit (AVEC) came into being to eventually replace the previous film, high-end TV, animation and children’s TV tax reliefs, while the video games expenditure credit (VGEC) launched to replace video games tax relief (VGTR).

Under the previous schemes, audio-visual tax refiefs were given by way of an additional deduction from profits or surrendering a loss for the tax credit. Under AVEC and VGEC, companies instead receive an above-the-line tax credit based on qualifying expenditure. This is taxable at the main rate of corporation tax.

UK audio-visual creative tax reliefs help boost creative sectors

The news is significant because, according to figures published in February 2024 by the British Film Institute, the UK’s film and high-end TV production industry contributed over £4.23bn to the economy in 2023.

The AVEC rate for films, high-end TV and video games will now be 34%, while animation and children’s TV receives a rate of  39%. These net down after the corporation tax deduction is applied to 25.5% for film and high-end TV, and 29.25% for animation and children’s TV. This compares with the previous credit of 25% for all creative industries.

The qualifying criteria for core spend, including the ‘used and consumed’ definition and other rules for the current audio-visual reliefs, are mostly carried across into AVEC and VGEC unchanged – as is the 80% cap on UK qualifying expenditure.

AVEC also introduces a new minimum slot length for high-end TV programmes of 20 minutes (as opposed to the current 30 minutes) on an episode-by-episode basis, and a definition for documentary programmes.

Steve Joberns, head of Film and TV at Shipleys, commented:

“The UK has established itself as a market-leading base for international production with both the incentives and quality of crew and facilities leading to many of the film studios and streamers committing much of their output to the UK.

The confirmation given by the government to the ongoing support to the industry in the form of the AVEC will enable the UK to continue to be the production base of choice for international production”.

Transition phase

Companies presently claiming for productions under the previous tax credit regimes can claim under AVEC in relation to expenditure incurred from 1 January 2024. New productions must be claimed under AVEC from 1 April 2025, and all productions must claim under AVEC from 1 April 2027. The previous tax incentives will cease on 1 April 2027.

Coming soon!

In his Spring Budget on 6 March 2024, The Chancellor announced two new tax credit opportunities commencing in April 2025:

1. Visual effects

Tax relief under the AVEC system will be given to the costs of visual effects in films and high-end TV. These costs will receive an additional tax credit of 5% above the usual AVEC rate. The 80% cap on qualifying expenditure will also be removed for visual effects. The government is currently consulting on the types of visual effects expenditure that will fall within the scope of the relief.

2. A new UK independent film tax credit

A further tax credit will be introduced under the AVEC system. It is designed to help UK independent films that have production budgets (excluding marketing and distribution) of up to £15 million and which meet the criteria of a new test from the British Film Institute.

The Independent Film Tax Credit (IFTC) rate will be 53% of qualifying expenditure. Qualifying expenditure is capped at 80% of a film’s total core expenditure, with an upper limit of £6.36 million for a film.

The IFTC (like AVEC) is an above-the-line tax credit on qualifying expenditure and is taxable at the main rate of corporation tax (currently 25%). This means the IFTC rate nets down after corporation tax is deducted to 40%. This is still significantly higher than the AVEC rate for films, which nets down to 25.5%.

The changes will take effect for films that start principal photography from 1 April 2024 and on expenditure incurred from 1 April 2024.  Claims can be submitted to HMRC from 1 April 2025.

Learning curve ahead

Gurvir Cheema, partner in the Film and TV unit at Shipleys said:

“The introduction of AVEC is a big step forward for the industry. Inevitably there will be a learning curve to determine the mechanics of the new credit, and there are some aspects of the draft legislation that will need to be reviewed by the government before the rules are finalised.

We will be contacting clients and holding a number of events in the coming months to ensure that our clients within the creative industries can make the best use of the credits available”.

Shipleys is recognised as a market leader in providing accountancy, tax and business advice to the film, TV, animation and video games sectors so please contact one of our specialists now.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

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