Reform of audio-visual creative tax reliefs
Published 22 November 2023
© Crown copyright 2023
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/reform-of-film-tv-and-video-games-tax-reliefs-to-expenditure-credits/reform-of-audio-visual-creative-tax-reliefs
Who is likely to be affected
Companies claiming tax relief for films, high-end TV programmes, animated TV programmes, children’s TV programmes or video games.
General description of the measure
The film, TV and video games tax reliefs will be reformed to expenditure credits, following the same approach as the Research and Development Expenditure Credit (RDEC). The new Audio-Visual Expenditure Credit (AVEC) will replace the current film, high-end TV, animation and children’s TV tax reliefs. The Video Games Expenditure Credit (VGEC) will replace the Video Games Tax Relief (VGTR). Film, high-end TV and video games will be eligible for a credit rate of 34% and animation and children’s TV will be eligible for a rate of 39%.
Policy objective
The reform will modernise the creatives tax relief system and ensure they continue to work as intended.
The qualifying criteria and other rules for the current audio-visual reliefs will mostly be carried across into AVEC and VGEC unchanged, including the 80% cap on qualifying expenditure. Qualifying expenditure will still be calculated on a cumulative basis.
Under the current schemes, relief is given by way of an additional deduction from profits or surrendering a loss for a tax credit. Under AVEC and VGEC, companies will instead receive an above the line tax credit based on qualifying expenditure. This will be taxable.
The credit rate for films, high-end TV and video games will be 34%, which is a slight increase compared to the current schemes. Animation and children’s TV will receive a rate of 39%. To ensure fairness, animation will be extended to include animated theatrical films as well as TV programmes.
AVEC will also introduce a new minimum slot length for high-end TV programmes of 20 minutes, on an episode-by-episode basis, and a definition for documentary programmes.
Qualifying expenditure for both AVEC and VGEC will be the same as the definition used in the current film and TV reliefs — expenditure that is ‘used or consumed in the UK’. The subcontracting cap in place for VGTR will be removed for VGEC.
To safeguard the new credit regimes, anti-abuse rules will be introduced to prevent abuse of the higher rates of relief for animation and children’s TV.
Background to the measure
A ‘Audio-visual tax reliefs: consultation’ document was published in November 2022 at Autumn Budget. The document covered proposals to modernise and simplify the audio-visual creative tax reliefs which include:
- Film Tax Relief (FTR)
- High-End TV Tax Relief (HETV)
- Animation Tax Relief (ATR)
- Children’s TV Tax Relief (CTR)
- Video Games Tax Relief
It also covered proposals to overhaul how tax credit is calculated. The consultation sought views to simplify and modernise the claim for reliefs, boost growth in the sectors and ensure the reliefs remain sustainable. The consultation closed on 9 February 2023.
A response document to the 2022 consultation was published on 15 March 2023 at Spring Budget. It was announced that the existing audio-visual reliefs would be replaced by new expenditure credit regimes.
Draft legislation was published on 18 July 2023. The consultation on the draft legislation closed on 12 September 2023. This tax information and impact note has been amended following the draft legislation consultation.
Detailed proposal
Operative date
Companies claiming for productions under FTR, HETV, CTR and ATR will be able to 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. FTR, HETV, CTR and ATR will cease on 1 April 2027.
The same transitional dates apply to the transition from VGTR to VGEC. VGTR will cease on 1 April.
Current law
The current law is contained in Parts 15,15A and 15B of the Corporation Tax Act 2009 (CTA 2009), containing the rules for companies claiming FTR, HETV, ATR, CTR and VGTR.
The payable credit in the RDEC is contained in section 104N of CTA 2009.
Proposed revisions
The new expenditure credit regimes will be largely similar to the existing tax reliefs in most ways, such as in terms of eligibility and the definitions of qualifying expenditure.
AVEC will be a combination of Parts 15 and 15A, with the film and TV regimes being merged into one scheme. However, the specific eligibility criteria for each category will be mostly preserved, with animation and children’s TV qualifying for a higher credit rate. Productions will be able to transfer between categories, with some exceptions to prevent abuse of the higher rates.
The calculation of the new credit is modelled on s104N CTA 2009. However, AVEC and VGEC will not include Step 3, the PAYE or National Insurance contributions cap. Companies will also be able to surrender amounts withheld at Step 2 to group companies with more flexibility, to recognise the particular needs of production companies.
Summary of impacts
Exchequer impact (£ million)
Creative reliefs: reform of audio-visual tax reliefs into expenditure credits with increase in rates
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| Nil | Negligible | -15 | -40 | -45 | -50 |
These figures are set out in Table 4.1 of Spring Budget 2023 as ‘Creative reliefs: reform of audio-visual tax reliefs into expenditure credits with increase in rates’. These figures incorporate the Exchequer impact of ‘Administrative changes to the creative industry tax reliefs’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings documents published alongside Spring Budget 2023.
Creative industries tax relief - extension to animated films
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | Negligible | -5 | -5 | -10 | -10 |
These figures are set out in Table 5.1 of Autumn Statement 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2023.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
These measures have no impact on individuals, as they only affect businesses.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
These measures are expected to have a negligible impact on fewer than 3000 businesses claiming the creative tax reliefs. One-off costs could include familiarisation with the changes and updating systems to reflect them. There are not expected to be any continuing costs.
HMRC will support customers by providing clear guidance to assist businesses affected, and will be introducing a new information form to help customers submit all the information required under the new schemes.
These measures are not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
Current analysis indicates no additional costs anticipated as a result of these changes.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Kerry Pope at kerry.pope@hmrc.gov.uk, or Stephanie Martinez at stephanie.martinez@hmrc.gov.uk.