New tax incentives for TV, film and video game production have come into force in the UK. As of January 1st, five existing tax reliefs have been replaced by two consolidated measures – one for audio-visual production, and one for video games.
Both the new Audio-Visual Expenditure Credit and the Video Games Expenditure Credit offer the same basic rate, with higher allowances for animated film and children’s TV. As well as offering a consolidated scheme with simpler administration, eligible companies can expect higher net benefits.
That’s despite the system switching from a tax relief to an expenditure credit framework. Previously, the combined family of audio-visual reliefs plus the video game relief operated as a straight deduction from corporation tax. For example, film production companies were allowed to deduct 25% of qualifying expenditures from their tax liabilities.
The new expenditure credits are received net of tax deductions. So for accounting purposes, they count as income and are then subject to corporation tax. The standard rate is 34% of qualifying expenditure. At the 25% main rate of corporation tax, this works out as a 25.5% benefit, a 0.5% uplift on the old regime.
Animation and children’s TV companies do even better, with an enhanced expenditure credit of 39% working out as a 29.25% benefit after tax.
A similar switch to an all-expenditure credit system will come into effect for research and development (R&D) tax breaks in April.
Staying competitive
The film and TV industry generates around £20bn a year for the UK economy. As well as a vibrant domestic sector, the UK is a major player on the international scene. The country is regularly chosen as a destination to shoot mega-money box office hits, with Barbie and Wonka two high profile recent examples.
Tax reliefs were introduced in 2007 in a bid to bolster this flow of inward investment. However, other countries have since spotted opportunities to incentivise specialist production disciplines like visual effects and animation, leading to a steady stream of offshoring. It’s hoped that having a single umbrella credit system covering a broad range of audio-visual media production will help to stem and even reverse this.
The UK video games industry, meanwhile, is the largest in Europe. The original video games tax relief was introduced in 2014. To the end of 2023, claims were made on the development of 1,940 games, with a total production expenditure of £5.1bn. 95% of games developed in the UK are exported.
A transition period will allow companies to choose either the expenditure credits or the tax reliefs they are replacing on any productions that begin before April 2025. After that date, all new production expenditure will switch to the new system, with the old tax reliefs phased out entirely by April 2027 even on productions that commence before April 2025.
Want to learn more about tax planning for the film, TV and video production industries? Or looking for specialist accounting services for the sector? Get in touch with our Media and Technology team today.
