Audio-Visual Creative Industry Tax Reliefs to be reformed from 2024
03/02/23
There are currently eight creative industry tax reliefs available for production companies in the UK. These are divided into two subsets, five of which are audio-visual reliefs and three cultural reliefs. The government is currently in consultation about the reformation of the audio-visual reliefs in the near future, which is expected to run until the 9th of February 2023. These are:
- film tax relief (FTR)
- animation tax relief (ATR)
- high-end TV tax relief (HETV)
- children’s TV tax relief (CTR)
- video games tax relief (VGTR).
In 2021-22, the audio-visual tax reliefs provided £972 million of support for the UK’s creative industry, a value which is expected to flourish this year as we move further away from the pandemic’s limitations.
Since the original film tax was introduced in 2007, it’s been seen how the UK has become a more attractive film and production location than it would have been otherwise. With this in mind, the government’s current consultation aims to simplify and modernise the audio-visual reliefs, to ensure that they can continue to boost growth in the audio-visual sectors, but still remain fiscally sustainable.
What are the current audio-visual reliefs?
UK audio-visual reliefs have essentially two components: an additional deduction and a tax credit.There are set steps taken to calculate a claim for an audio-visual tax relief. These are:
- an additional deduction of up to 80% of the company’s qualifying production costs is applied to its taxable profit/loss
- if the additional deduction results in a loss for tax purposes, the entity can choose to carry this loss forward or surrender it for the tax credit
- the loss can be surrendered up to a maximum of the amount of the additional deduction in the year plus any additional deduction in prior years which has not already been surrendered, for a payable tax credit at a rate of 25% of the loss being surrendered
- when the loss is carried forward, that amount of loss can be surrendered as a credit in a later year, to the extent it hasn’t been offset against taxable profits
- productions must be certified as culturally British by the British Film Institute (BFI). They must pass a cultural test or qualify through an internationally agreed co-production treaty.
Reviewing the audio-visual reliefs
In order to ensure that those who need the reliefs can make the most of them, the government is launching a review of the audio-visual reliefs. They have set out several objectives for the review, which are to ensure that:
- the UK has modern audio-visual tax reliefs that enhance the UK’s audio-visual industries
- the reliefs maximise the contribution of the audio-visual industries to the growth of the UK economy
- the reliefs remain affordable, with additional costs of the reforms are consistent with the government’s fiscal rules and commitment to sustainability in the public finances
- the reliefs are straightforward to administer and that the reformed audio-visual tax reliefs should not significantly increase administrative burdens for businesses or HMRC
- current and future commercial needs are anticipated without significant future changes being required
- the reforms do not create additional opportunities for tax avoidance.
The reform is expected to simplify the audio-visual reliefs by merging them into one tax credit scheme, modernising the criteria for HETV tax relief and defining a documentary in legislation. It will also attempt to modernise EU legacy conditions in VGTR by reforming qualifying expenditure and the subcontracting limit.
The above is general information about the government’s plan to reform the audio-visual creative industry tax reliefs. If you have any queries about this topic, please contact a member of the team directly on 020 7625 4545 or email info@mgr.co.uk.
Warning: The above is merely general guidance and should not be relied upon as formal advice. The advice we give to each client will depend on their specific circumstances. We suggest you take professional advice before taking any action in relation to the issues discussed above.
