Changes released for creative industry tax reliefby
Two new expenditure credits for the audio-visual and video games sectors will become available for expenditure incurred from 1 January 2024.
Following a consultation in 2022, Finance Bill (FB) 2024 contains legislation introducing new reliefs for the audio-visual and video games sectors.
These reliefs, known as the audio-visual expenditure credit (AVEC) and the video games expenditure credit (VGEC) will replace the current reliefs for film, TV and video games production. Each qualifying film, TV programme or video game will be a qualifying production and the associated qualifying company will be able to make an election under the new rules to treat the production as a separate trade for the purposes of this relief.
The rules for calculating the profits or losses of the separate trade and the definitions of qualifying expenditure for the new expenditure credits (ECs) are fundamentally the same as under the current reliefs, although there has been a change to remove references to EU/EEC expenditure. Eligible expenditure for the EC is now the lower of 80% of the company’s core expenditure and so much of that as is UK expenditure – expenditure on goods or services that are used or consumed in the United Kingdom.
The rate of EC that the company can claim depends on the type of production: for a qualifying animation (either a TV programme or a film) or a children’s TV programme, the rate is 39%; or all other film or TV productions and for video game productions, the rate is 34%.
As with the research and development (R&D) expenditure credit, the AVEC and VGEC are taxable credits, increasing the taxable profit before then being available to discharge the company’s CT liability for the current or (potentially) other periods, or available for surrender to group companies. Any EC not used is available to be paid to the company as a payable credit.
It will be possible for development companies to elect for the new AVEC or VGEC single trade rules to apply for accounting periods ending on or after 1 January 2024, with split period rules covering any accounting period straddling that date. There will be a transitional period between now and 1 April 2027 with the current reliefs in Parts 15 to 15B CTA 2009 still available. Any new trades commencing on or after 1 April 2025 will have to obtain relief under one of the new expenditure credit regimes as appropriate but existing productions will still be able to obtain the existing reliefs until 1 April 2027.
Other creative sector reliefs
FB 2024 also contains some administrative changes affecting all of the creative sector reliefs and some technical clarifications affecting the cultural reliefs.
An additional information form (AIF) will become compulsory for all claims made on or after 1 April 2024. HMRC has been encouraging the use of an AIF for a while, but this will now become compulsory, a claim to relief will not be valid unless the AIF has been filed online.
Paragraph 83W(1) of Schedule 18, FA 1998 will be amended to redefine the deadline for filing a claim for relief or expenditure credit by reference to the end of the relevant period of account, rather than the filing date. The result will still be that the claim must be made within two years of the end of the relevant period of account, but it will stop the rare situation where a company fails to register for CT in time, under the current wording of paragraph 83W that company may have ended up with extra time to file a claim.
Credit under AVEC, VGEC or the cultural reliefs will not be payable if the relevant production company is in liquidation or administration. Note that this is not quite the same as the broader going-concern requirement for R&D relief.
Where the production company incurs expenditure with a connected party, each of the reliefs will now exclude any element of that payment that exceeds the relevant costs incurred by the connected party. This will not apply if the payment to the connected party represents an arm’s length price (within the meaning of Part 4 of TIOPA 2010).
There are also a series of technical clarifications relating to the cultural reliefs.
- For theatre and orchestra relief, clarification that capital expenditure in general is excluded.
- For all of the cultural reliefs, clarification that certain costs incidental to the production are not to be treated as core expenditure.
- For theatre relief, clarification that the “playing of roles” requirement is a primary focus. In addition, a clarification that the primary focus of the audience must be the observing of the performance.
- For orchestral relief, the time limit for electing to treat a series of concerts as one production is changed to either the date of the first concert in the series or the date of the claim for relief relating to the first concert in the series, whichever is later.
- For museum and gallery exhibitions, the admission requirement must mean admission to the physical location of the exhibition.
The government clearly believes that expenditure credits are the way forward, probably because they are likely to be qualified refundable tax credits for the OECD Pillar 2 rules. Film, TV and video game development companies (and their advisers) will need to get to grips with these new reliefs fairly quickly and decide when (or whether) to transition existing developments into the new schemes.
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I am an independent specialist adviser on the taxation of innovation, advising companies and other advisers on areas such as R&D tax relief, Patent Box and Creative Industry reliefs, as well as IP tax issues more generally.
Formerly a Tax Partner with KPMG LLP (UK), I left in 2011 to establish Aiglon Consulting.