Audio-Visual Expenditure Credit (AVEC): What You Need To Know

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.

What is the AVEC?

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.

Who can claim AVEC?

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:

• pre-production  
• principal photography  
• post-production  
• delivery of the completed film or programme

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.

When does the AVEC come into effect?

Companies can claim the AVEC rates on expenditures incurred from 1^st 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.

What’s a qualifying production?

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.

Films

A film can qualify for AVEC if it:

• is certified as British by the British Film Institute
• is intended for theatrical release
• has at least 10% of the ‘core costs’ related to activities in the UK

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.

Television Programmes

A TV programme is eligible for the AVEC if it:

• is certified as British by the British Film Institute (BFI)
• is intended for broadcast to the general public — this includes streaming online
• has at least 10% of the ‘core costs’ relating to activities in the UK
• is a drama, comedy, documentary, animation or children’s programme

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:

• have average ‘core costs’ of at least £1 million per hour of slot length
• have a slot length of more than 20 minutes per episode

TV programmes commissioned together are treated as one programme.

Some programmes are excluded from qualifying:

• Advertisements or other promotional material
• News, current affairs, or discussion programmes
• Entertainment shows like quiz shows, game shows, panel shows, variety shows, or chat shows
• Programmes that include a competition or contest, or announce their results
• Broadcasts of live events, or performances that weren’t specifically created to be filmed
• Programmes made for training purposes

Independent Film Tax Credit

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.

How much is AVEC worth?

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:

• 39% of qualifying expenditure is for children’s TV programmes, animated films, and animated TV programmes. The net benefit is 29.25% after deducting corporation tax at 25%.
• 34% on all other films and TV programmes. The net benefit is 25.5% after deducting corporation tax at 25%.

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.

What costs can you claim?

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.

Qualifying expenditure

You can claim an expenditure credit based on a percentage of your qualifying expenditure, which will be the lower of either:

• 80% of total core costs
• the amount of UK core costs

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.

Development vs pre-production 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”.

What do you need to claim AVEC?

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:

• a British cultural certificate from BFI
• statements of the amount of core costs, split between UK and non-UK costs
• a breakdown of costs by category
• details of connected party transactions, if applicable

From 1^st 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).

How can productions qualify as ‘British’?

Production companies need to have British certification from BFI. BFI will issue:

• an interim certificate for a production that is not yet completed
• a final certificate for a completed production

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.

How can the AVEC be used?

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.

Where can you get help claiming AVEC?

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.