CREC054230 - Eligible expenditure: UK expenditure: film and TV examples: post-production services
Location not dependent on earlier activities
The location in which services related to post-production are consumed is determined independently from that at which earlier production activities took place.
Post-production is the stage of production where the output of the previous stages of development, pre-production and principal photography are assembled, further elements are added and the film or programme as an entirety is made into a version which is capable of being shown to an audience.
The services related to post-production may take place at a different location from that where the principal photography took place. This is not necessarily the case, but it cannot be assumed that because a film or programme was predominantly produced in one location, all post-production expenditure also occurred there. If we consider the services of an editor as transforming raw footage into a structured and logical sequence, then linking the place of consumption to the location of principal photography would produce results which are at odds with the policy objectives of the Audio-Visual Expenditure Credit (AVEC). For example, it would not incentivise the use of a UK editing company working on a culturally British film where all or part of the principal photography took place outside the UK.
If a production company subcontracts post-production services, it will need to establish from its suppliers the extent to which those services are being performed inside and outside the UK. Only expenditure on services used or consumed in the UK will attract relief.
Computer-generated imagery (CGI)
HMRC treats CGI as the creation of new images, akin to the creation of images of actors during principal photography.
Where the imagery is created in the UK, the CGI services should be viewed as being used or consumed by the production company in the UK (in the same way that principal photography services are used or consumed in the UK when principal photography is located in the UK).
In other words, where a production company incurs expenditure on CGI services which are carried out in the UK, it uses or consumes those services in the UK and the expenditure is UK expenditure. If the services are carried out overseas, the services are not used or consumed in the UK and the expenditure is not UK expenditure.
As with other post-production services, if a production company subcontracts CGI services, it must establish from its suppliers the extent to which those services are being performed inside and outside the UK.
Visual effects (VFX) costs
Additional credit for visual effects costs is given in respect of relevant visual effects expenditure on certain films and TV programmes (CREC061410), which can include CGI services. However, relevant visual effects work must be ‘carried out in the United Kingdom’. This is a narrower definition than the used or consumed test and means that expenditure will only qualify for additional credit if the work actually takes place in the UK, as well as being used or consumed in the UK. See CREC061420 for details.
VFX work (including CGI work) that is used or consumed in the UK is likely to also have been carried out in the UK – see Example 1 below. However, if a production company incurs expenditure on VFX work which is used or consumed in the UK but not carried out in the UK, that expenditure qualifies for AVEC but is not eligible for additional credit.
For example, a VFX storyboard is produced in Canada and then used by VFX artists in the UK to help produce CGI elements for a production. The work on the storyboard was used or consumed by the VFX artists in the UK, but was carried out in Canada. This means the cost of the storyboard is UK expenditure but is not expenditure on work carried out in the UK. The cost therefore qualifies for AVEC but is not eligible for additional credit.
Other services
The same approach applies to other post-production services, such as editing and sound synchronisation.
Example 1
A film production company engages a UK CGI company to create images and scene backdrops.
The CGI company has two branches, one in the UK and one overseas, and the work is evenly split between the two locations. Half the expenditure, on the proportion of CGI work which takes place in the UK, is treated as UK expenditure on the grounds that that is where the production company uses or consumes those services. This is not affected by the location where principal photography on the film took place.
The non-UK CGI expenditure is not treated as UK expenditure because the service is used or consumed by the production company outside the UK.
Example 2
A production company commissions a French composer, resident in New York, to write music for a TV programme which is being shot in the UK. The music is recorded by an orchestra in London and then incorporated into the programme during post-production in the United States.
The expenditure on recording the music is analogous to that on principal photography, with the score playing the role of the script. It is therefore used or consumed in the UK.
The expenditure on post-production, when the music is incorporated into the film, takes place in the United States so this is not UK expenditure.
The expenditure on the score itself is UK expenditure to the extent that it is attributable to the recording. As the recording was made in the UK, all or most of the costs of the score is UK expenditure. The expenditure on incorporating the music is not UK expenditure, but that work will largely be based on the recording and not the score itself.