In January 2024, the UK Government introduced a new Audio Visual Expenditure Credit (AVEC). The reform modernises the creative sector tax relief system and ensures it will continue to work as intended.

For qualifying animated films, animated TV programmes and children’s TV programmes, the net value of the relief will be 29.25%.

For all other qualifying features films and TV programmes, the net value of the relief will be 25.5%.

The Government has set out the following transition rules for film and TV:

• The AVEC is available to companies with accounting periods ending on or after 1 January 2024.
• If a company’s accounting period begins before 1 January 2024 but ends after 1 January 2024, it will have the option to apply existing rules on expenditure incurred up to 31 December 2023 and apply AVEC rules on expenditure incurred from 1 January 2024.
• For productions where principal photography begins before 1 April 2025, existing rules remain available up to 31 March 2027.
• Existing rules will not be available to productions where principal photography commences on or after 1 April 2025.

The specific qualification criteria for each of the current film and TV reliefs remain unchanged within the AVEC, including:

• UK expenditure defined as expenditure on goods/services “used or consumed” in the UK.
• The mechanism for apportioning expenditure between UK and non-UK remains a “just and reasonable” basis.
• The TV minimum expenditure test remains at £1 million of core expenditure per hour of slot length.
• The 80% cap is retained (except as noted below for qualifying VFX expenditure, from April 2025) – so UK core expenditure in excess of 80% of total core expenditure will not generate credit.
• The minimum UK core expenditure threshold remains 10% of total core expenditure.

Full details can be found here.

The main corporation tax rate sum deducted from the gross credit can be utilised in various ways, including being surrendered to other group companies and used to discharge part of their own corporation tax liabilities.

The existing creative sector tax relief system remains available to productions where principal photography begins before 1 April 2025, up to 31 March 2027.

Further new measures announced by the Government in March 2024 will make the reliefs even more competitive:

• A new UK Independent Film Tax Credit within the AVEC, at a net rate of 39.75%. This will be available from 1 April 2025 (for productions on which principal photography begins on or after April 1 2024) to films with budgets up to £15m that meet the criteria of a new BFI UK creative practitioner test.
• Under the AVEC, UK VFX costs on film and high-end TV productions will receive a 5% increase in tax relief, for an overall net rate of 29.25%. The Government will also remove the AVEC’s 80% cap on qualifying expenditure for UK VFX costs. These changes will take effect from 1 April 2025.

Full details can be found here.

Value

For all British qualifying films of any budget level, the Film Production Company (FPC) can claim a payable cash rebate of up to:

• Film Tax relief: 25% on UK qualifying expenditure.
• AVEC: 25.5% for live action feature films and 29.25% for animated feature films.

The tax relief is capped at 80% of the core expenditure i.e. even if you have 100% UK-qualifying expenditure, tax relief is only payable on up to 80%.

There is no limit on the budget of the film or the amount of relief payable within the 80% cap.

Qualifying as British via the cultural test

The Cultural Test for film is points-based, with sections relating to content, cultural contribution, location, and cast and crew.

Projects need to achieve at least 18 from a possible 35 points.

The sections are:

• Cultural content
• Cultural contribution
• Cultural hubs
• Cultural practitioners

Qualifying as a British co-production

The UK has film co-production agreements with Australia, Brazil, Canada, China, France, India, Israel, Jamaica, Morocco,New Zealand, Occupied Palestinian Territories, and South Africa. Of these, Australia, Brazil, Canada, New Zealand, South Africa, China, Israel and the Occupied Palestinian Territories also allow for TV programmes.

The UK is also a signatory to the European Convention on Cinematographic Co-production.

• There must be a UK production company responsible for all UK elements of the production from beginning to completion.
• There must be corresponding production companies in the other co-producing party countries.
• There must be a co-producer in each country, and an application lodged in each country.
• The decision will be made jointly by the authority in each country.
• The filmmaking contribution from each country will be in proportion to the finance from each country.

For more information on co-productions, please visit the BFI website.

Film Production Company (FPC)

• The FPC responsible for the film must be within the UK corporation tax net.
• Must make the arrangements for pre-production, principal photography, VFX, post-production and delivery.
• It is best to incorporate sooner rather than later so costs can be included towards tax relief claim.
• Can be a UK ‘off-the-shelf’ company set up on behalf of an international parent company.
• Work can be sub-contracted as long as this is reflected in the FPC’s accounts.
• Loan-out companies can be used as long as this is reflected in the FPC’s accounts.

Intention for theatrical release

There must be an intention for theatrical release.

If there is any doubt about the intention, the following factors would count in favour of the film being intended for theatrical release:

• a finance plan written on the basis that the film will be released theatrically;
• a normal full-length or short feature film of a type commonly shown at cinemas;
• production in a format suitable for theatrical showing at the commercial cinema;
• payment to actors and other participants on terms in line with those prevailing for cinema films (rather than, for example, TV work), and;
• the relevant person can demonstrate, at the end of the relevant accounting period, the intention to seek a contract to present the film in the cinema.

For more information, please read HMRC’s detailed guidance.

Minimum UK expenditure and included costs

At least 10% of the film’s core expenditure must be UK expenditure.

Included costs

• UK-qualifying production expenditure is defined as expenditure ‘used or consumed’ in the UK i.e. costs incurred by the FPC on filming activities (pre-production, principal photography, VFX and post-production) that take place within the UK, irrespective of the nationality of the persons carrying out the activity.
• Above-the-line, including actors and directors, is included, irrespective of nationality.
• Core expenditure incurred at a later stage on a project where there are ‘residuals’ to be paid will attract further relief; for example further payments to actors and directors.

Excluded costs

• Bond
• Financing
• Option payments for book rights
• Development
• Entertainment
• Publicity
• E + O insurance
• Capital Expenditure

Value

• For scripted TV projects with a minimum core expenditure of £1 million per broadcast hour the TV Production Company (TPC) can claim a payable cash rebate of up to:
• High-end TV Tax relief:  25% on UK qualifying expenditure.
• AVEC: 25.5% on UK qualifying expenditure.
• The tax relief is capped at 80% of the core expenditure i.e. even if you have 100% UK qualifying expenditure, tax relief is only payable on up to 80%.
• There is no limit on the budget of the TV project or the amount of relief payable within the 80% cap.

Qualifying as British via the cultural test

The Cultural Test for high-end TV (HETV) is points-based, with sections relating to content, cultural contribution, location, and cast and crew.

Projects need to achieve at least 18 from a possible 35 points.

The sections are:

• Cultural content
• Cultural contribution
• Cultural hubs
• Cultural practitioners

Under the existing creative sector tax relief system (available to productions where principal photography begins before 1 April 2025, up to 31 March 2027): Individual episodes of 30 minutes or less can qualify for the tax relief when commissioned together, however the £1 million average core spend per slot hour requirement would still need to be met (e.g. six 25 minute episodes commissioned together would qualify as long as the average core spend was at least 1 million per slot hour).

Under the AVEC: For TV programmes (other than animations or children’s programmes) each episode must have a slot length greater than 20 minutes in order to qualify (NB previously this was 30 minutes). It is not possible to aggregate multiple shorter episodes to achieve this 20-minute threshold – for example a series consisting of three 10-minute episodes will not qualify.

Qualifying as a British co-production

The UK has film co-production agreements with Australia, Brazil, Canada, China, France, India, Israel, Jamaica, Morocco, New Zealand, Occupied Palestinian Territories, and South Africa. Of these, Australia, Brazil, Canada, New Zealand, South Africa, China, Israel and the Occupied Palestinian Territories also allow for TV programmes.

The UK is also a signatory to the European Convention on Cinematographic Co-production.

• There must be a UK production company responsible for all UK elements of the production from beginning to completion.
• There must be corresponding production companies in the other co-producing party countries.
• There must be a co-producer in each country, and an application lodged in each country.
• The decision will be made jointly by the authority in each country.
• The filmmaking contribution from each country will be in proportion to the finance from each country.

For more information on co-productions, please visit the BFI website.

Television Production Company (TPC)

• The TPC responsible for the TV project must be within the UK corporation tax net.
• The TPC must make the arrangements for pre-production, principal photography, VFX, post-production and delivery.
• It is best to incorporate sooner rather than later so costs can be included towards the tax relief claim.
• The TPC can be a UK ‘off-the-shelf’ company set up on behalf of an international parent company.
• Work can be subcontracted as long as this is reflected in the TPC’s accounts.
• Loan-out companies can be used as long as this is reflected in the TPC’s accounts.

Intention for broadcast

TV projects must be intended for broadcast (including via the internet).

If there is any doubt about the intention, the following factors would count in favour of the programme being intended for broadcast:

• a finance plan written on the basis that the programme will be broadcast;
• a programme of a type commonly broadcast;
• production in a format suitable for broadcast;
• payment to actors and other participants on terms in line with those prevailing for programmes; and
• the relevant person can demonstrate that, when TV production activities began, there was an intention to seek a contract for broadcast of the programme.

Please note: it is possible to switch track between film and TV qualification once production has started. For more information, please read HMRC’s detailed guidance.

Minimum UK expenditure and included costs

At least 10% of the TV project’s core expenditure must be UK expenditure.

Included costs

• UK qualifying production expenditure is defined as expenditure ‘used or consumed’ in the UK i.e. costs incurred by the TPC on filming activities (pre-production, principal photography, VFX and post-production) that take place within the UK, irrespective of the nationality of the persons carrying out the activity.
• Above-the-line, including actors and directors, is included, irrespective of nationality.
• Core expenditure incurred at a later stage on a project where there are ‘residuals’ to be paid will attract further relief; for example further payments to actors and directors.

Excluded costs

• Bond
• Financing
• Option payments for book rights
• Development
• Entertainment
• Publicity
• E + O insurance
• Capital Expenditure

• Interim claims can be made – at the conclusion of principal photography, for example – so that pro-rated tax relief can contribute to post-production costs.
• There is no cap on funds available.
• There is no ‘sunset’ date.
• The tax relief has been supported and maintained by both leading UK political parties.
• The UK has a range of national and regional filming incentives which can be combined with the tax relief.
• It is possible to combine the UK tax relief with incentives from non-UK jurisdictions either under a Production Service Agreement or by qualifying as an official co-production.

You will need:

• DCMS/BFI certificate (interim or final) certifying that your production qualifies as British 
• Statutory accounts
• Tax return

Turnaround Times

For straight forward claims:

• BFI turnaround time is approximately 18 to 20 weeks.
• HM Revenue & Customs turnaround time is approximately 6 weeks.

Contact us for further guidance on UK tax reliefs and how to qualify as a British production.

Contact the BFI to find out how to apply for certification as an official British production under the cultural test or as a co-production.

Anna Mansi, Head of Certification

+44 (0)20 7173 3214

anna.mansi@bfi.org.uk

At Autumn Statement 2023 the Government committed to increasing the generosity of the AVEC for VFX expenditure, with the intention of implementing changes from April 2025.. At the Spring Budget in March 2024, the Government announced that film and HETV companies will benefit from a 5% increase in tax relief for UK VFX costs, for an overall net rate of 29.25%. UK VFX costs will not be subject to the 80% cap on expenditure in the AVEC. The Government is consulting on the types of costs that will be in scope of the additional tax relief for VFX. The Government will deliver the additional tax relief through changes to the AVEC and the Government intends to implement these from April 2025.

There is no obligation to carry out all production activity in the UK; it is possible to qualify for the UK tax relief by carrying out elements of the production process in the UK, e.g. VFX/post-production or principal photography, as long as the minimum expenditure requirement is met (10%) and all other qualifying criteria are satisfied.

Even if only certain elements of the production process are taking place in the UK e.g. VFX/post-production, it is essential that the FPC/TPC is incorporated in the UK as early as possible in order to qualify for the UK tax relief.

In addition to VFX/post-production/soundtrack recording costs qualifying for the UK tax relief, the prorated ‘neutral’ costs (qualifying costs which are spread throughout the production process, including senior producers, writers, director, insurances) will also qualify whilst activity is based in the UK i.e. if VFX/post-production/soundtrack recording costs amount to 20% of the total core expenditure, 20% of ‘neutral’ costs will also qualify whilst activity is based in the UK.

Below are just two examples of how you can qualify for the UK film and high-end TV (HETV)  tax relief.

VFX/post-production case study

A script that has been developed in the US needs to shoot in a location with sand dunes or tundra for its principal photography, but the studio/producer wants to bring VFX, post-production, and the soundtrack recording to the UK.

Core expenditure is allocated as follows:

Activities

Preparing costings and shooting schedule: Non-UK

Rehearsals: Non-UK

Principal Photography: Non-UK

VFX/post-production/Soundtrack recording: UK

As the project has satisfied all qualifying criteria i.e. the UK FPC is incorporated in the UK during early prep, the VFX/post-production/soundtrack recording is then carried out in the UK and the costs of which exceed the minimum UK-qualifying spend of 10%; then the VFX/post-production/soundtrack recording costs will qualify for the UK tax relief.

In addition to VFX/post-production/soundtrack recording costs qualifying for the UK tax relief, the prorated ‘neutral’ costs (qualifying costs which are spread throughout the production process, including senior producers, writers, director, insurances) will also qualify whilst activity is based in the UK i.e. if VFX/post-production/soundtrack recording costs amount to 20% of the total core expenditure, 20% of ‘neutral’ costs will also qualify whilst activity is based in the UK.

This same structure would also apply to any other element of the production process ‘used or consumed’ in the UK, e.g. principal photography, as long as the minimum UK-qualifying spend, and all other qualifying criteria are satisfied.

Screenwriter case study

An FPC owns the film rights for a book, and decides to make a feature based on it. It enlists a screenwriter to prepare the initial drafts of a screenplay and to rework them into a script which is used as the basis of filming.

The nature of the services provided by a screenwriter is the provision of a script.

The script is used as follows:

Activities

Preparing costings and shooting schedule: UK

Rehearsals: UK

Principal Photography: part UK, part overseas

VFX/post-production/Soundtrack recording: part UK, part overseas

These costs will be pro-rated, meaning all UK-qualifying spend is eligible for tax relief.