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Learn about the UK’s new Audio-Visual Expenditure Credit (AVEC) for film & TV, simplifying tax reliefs for creative sectors. Discover who qualifies, what productions are eligible, and how to claim this simplified credit, available for productions from 2024.
If you are in the business of Film, High-End TV, Children's TV and Animation, then this is a must-read article.
The Audio-Visual Expenditure Credit is one of the biggest tax incentive reforms we have seen for the creative industry.
This article, explains in 10 minutes everything you need to know about this new tax incentive.
Announced in the Spring Budget of 2023, the Audio-Visual Expenditure Credit (AVEC) is an entirely new tax credit scheme that will replace several creative tax credit incentives. Film Tax Relief, High-End Television Tax Relief, Children’s Television Tax Relief and Animation Tax Relief are being phased out and combined into a single scheme.
Much like the R&D tax relief schemes being combined into a single expenditure credit-based scheme, the AVEC will be easier to calculate. It’s a broader scheme with more flexible qualification criteria and straightforward tax treatment.
Creative tax reliefs have become increasingly popular in recent years, with film and television the leading sectors. Simplifying the tax credit should further increase the popularity of the schemes. However, Theatre Tax Relief, Museums and Galleries Exhibition Tax Relief, and Orchestra Tax Relief will continue to operate within their existing schemes.
Production companies can claim AVEC if they meet specific criteria.
Film production companies (FPCs) or television production companies (TPCs) can claim the AVEC on their productions, so long as they are responsible for:
The FPC or TPC must also actively participate in planning and decision-making and be responsible for contracting and paying for rights, goods, and services.
Companies can claim the AVEC rates on expenditures incurred from 1st January 2024.
Claimants have up to 2 years from the end of the accounting period to claim creative industry tax reliefs (for both the old schemes and the new AVEC scheme).
The AVEC scheme was brought in to replace the existing creative tax relief schemes; to this end, AVEC will be the only scheme available for new productions from 1 April 2025 and the only scheme available to all productions from 1 April 2027, regardless of what scheme they previously claimed under.
Although the guidelines have loosened a little on definitions to encompass all four previous schemes into one, there are still some prerequisites for the films and TV shows to be eligible.
A film can qualify for AVEC if it:
A film is considered an animation if at least 51% of the ‘core costs’ are spent on animation. This is important when calculating the rate of relief, as discussed below.
A TV programme is eligible for the AVEC if it:
If the primary audience for the TV programme is under 15 years old, it is considered a “children’s programme”.
As with films, at least 51% of the ‘core costs’ must be spent on animation to be considered an animation.
For the show to be considered a drama, comedy or documentary, the programme must:
TV programmes commissioned together are treated as one programme.
Some programmes are excluded from qualifying:
The Independent Film Tax Credit (IFTC) was recently announced. It offers smaller film productions the opportunity to claim an enhanced AVEC rate. Productions with core budgets of up to £23.5 million can claim the IFTC. This only applies to films that started principal photography on or after 1 April 2024.
To qualify for the increased rate, the FPC must meet all the standard requirements, plus a “Modified Creative Connection”, which means that the director and/or scriptwriter must be a British citizen or resident, or it must be an official British co-production.
The AVEC scheme has two rates, depending on the production type. Children’s TV programmes and animations can benefit from a slightly higher rate, so it’s important to know the thresholds for these categories.
FPCs and TPCs can claim the following expenditure credit rates:
The IFTC allows small, independent film producers to claim at a more favourable rate of 53%.
The expenditure credit is an above-the-line credit, which means it’s taxable income. The total expenditure credit for the period will be taxed at the main rate of 25%, which gives you the real-world benefit rates above.
Production companies can only claim a portion of ‘core costs’, which are the costs of pre-production, principal photography, and post-production.
A production company does not need to be directly responsible for all core activities; third parties can undertake some activities as subcontractors.
You can claim an expenditure credit based on a percentage of your qualifying expenditure, which will be the lower of either:
This means that a production with costs entirely in the UK can only claim 80% of its expenditure. However, a production with costs outside the UK will only be able to claim the UK-based portion, assuming they are less than 80% of the total costs.
AVEC can be claimed for pre-production expenditure but not for development expenditure. The difference depends on when the production was greenlit.
Development expenditure covers the work done to determine if a film or TV show has enough potential to move forward and make it to production.
Pre-production expenditure, on the other hand, happens once a decision has been made to move forward with the film or TV show. Some of this can overlap with ongoing development work.
Apportioning costs between phases of production should be done on a “just and reasonable basis”.
Like the existing tax reliefs, AVEC requires production companies to treat the making of each film or TV programme as a separate production trade.
For each production, production companies must provide:
From 1st April 2024, all claims must be accompanied by an additional information form (AIF). The claim is actually submitted by including the relevant details on the Corporate Tax Return (CT600).
Production companies need to have British certification from BFI. BFI will issue:
Either certificate can be used as a British certification, but it needs to be the correct certificate for the state of the production.
The BFI cultural test has a pass mark of 18 points out of a potential 35. There are four sections to the test: Section A considers cultural content; Section B regards cultural contribution; Section C relates to cultural hubs; finally, Section D covers cultural practitioners.
This is a particularly time-consuming part of the claim process. If you’re worried about getting your certificate in time or meeting the criteria, get in touch with the experts.
The AVEC must be used to pay off a company’s Corporation Tax liability first. If there is a remainder, it can be used to pay off other tax liabilities or it can be surrendered to other group companies. If there is still a remainder after these steps, companies will receive a cash credit for the leftover. This needs to be worked out by the claimant before submission, as a self-assessed tax credit.
This can be a complex process, particularly for companies with more than one production seeking to create multiple trades for tax purposes.
Myriad are by your side through the whole process, from the BFI certificate to the claim submission. We have experienced advisors specifically focused on creative tax relief who can guide companies in even the most complex situations.
If you have any questions about eligibility or want to know more about the best tax treatment for your production, get in touch with Myriad.
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