What are Creative Industry Tax Reliefs and how does it all work?
Launched by the UK government in 2013, when it comes to financial business incentives Creative Industry Tax Reliefs are the new kids on the block. They have, however, been understandably very popular and largely well received across the sector.
Creative Industry Tax Reliefs cover a range of financial incentives that have been made available to qualifying companies across a broad spectrum of creative disciplines. Their aim is to encourage investment into the UK’s creative industries longer term, with schemes available including Video Games Tax Relief, Animation Tax Relief, Film Tax Relief and High-end Television Tax Relief.
What was the reasoning behind their introduction?
Essentially, it’s in the UK government’s interest to support businesses that are looking to grow and invest, as this type of development serves to boost the UK economy. In the March 2002 Budget, the chancellor at the time (Gordon Brown) announced that he would be introducing Corporation Tax reliefs to come into effect from April 2013 aimed at the video-games, high-end television and animation industries, subject to eligibility. The new reliefs were confirmed in the draft Finance Bill of 2013. Until this time, the creative industries had found accessing existing technology tax relief a struggle, because the definition of what qualifies for R&D tax relief had not included the creative sectors. This was despite the fact that many companies had spent huge amounts of time and money in pioneering new technology and research. Widely regarded in the industry as a progressive, forward-thinking leap forward, the reliefs made the UK’s creative sector tax regime much more in keeping with other countries such as Japan and Canada which already offered similar reliefs for their own creative industries.
What are the different reliefs and how do they work?
Each type of tax relief works in a similar way in that they all allow a deduction of qualifying R&D expenditure against a company’s trading profits for that period. The result of this is a lower taxable profit - or a loss - which can be exchanged for a cash credit courtesy of HMRC.
As you would expect, there are certain criteria and conditions that need to be met so that a company can benefit from the relief. We’ve highlighted these along with the key features below:
Video Games Tax Relief (VGTR)
Companies based in the UK are able to claim VGTR if it is deemed to be eligible against all of the following stipulations:
- The video game in question is British
- It must be destined for the British or global market
- A minimum of 25% of the game’s core expenditure is based on goods or services that are received from inside the European Economic Area (EEA)
Film Tax Relief (FTR)
A company is likely to be successful in claiming FTR if the film meets each of these requirements:
- It passes the cultural test or is deemed to be an official co-production
- The first day of filming happened on or after 1st January 2007
- It is destined for theatrical release
- A minimum of 10% of the total production costs are in relation to activities that took place in the UK
High-end Television Relief (HTR)
UK companies are able to make a claim for HTR in relation to a specific programme that meets the following criteria:
- The programme must pass the cultural test or qualify as an official co-production
- The programme is made with the intention of broadcasting it
- It’s a documentary, comedy or drama programme
- A minimum of 10% of the entire production cost relates to activities that have taken place in the UK
- Production costs must be a minimum of £1 million per hour
- The programme’s slot length must be longer than 30 minutes
Animation Tax Relief (ATR)
ATR can be claimed by companies on the production of an animation programme if:
- The programme meets all the requirements of the cultural test or is deemed to be an official co-production
- The programme will eventually be broadcasted
- A minimum of 51% of the total costs of production are spent on animation
- 10% or more of total production costs are in relation to activities in the UK
How the relief is achieved
If a company believes it is eligible for one of the reliefs mentioned above, an application must be submitted to HMRC via the company’s Corporation Tax return. It is possible to make interim claims whilst production is in progress, before a final claim is made when the production is finished.
Relief is offered by an “enhanced deduction”, giving qualifying companies a further deduction when calculating their taxable profits.
If the company in question has made a loss - even once the enhanced deduction has been applied - the total losses can be treated under one of two options:
- The total figure of the loss is set against the production company’s income
- A percentage of the total losses is given over to HMRC in return for payment of a tax credit, being 25% of the loss being surrendered.
What is the Cultural Test?
UK productions must stand up to a certain amount of scrutiny by the Department for Culture, Media & Sport (DCMS) in order to be certified. In essence, the production must be culturally British in order to qualify for relief in relation to the existing Film Tax Relief.
Cultural testing for every type of Creative Industry Relief was outlined in the draft Finance Bill of 2013. It is administered on behalf of DCMS by the British Film Institute and each type of tax relief requires the submission of a BFI cultural test application form.
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