Independent Film Tax Credit: A Complete Guide

On the back of the British film industry delivering hits like Aftersun (2021), The Father (2020) and God’s Own Country (2017), the government announced exciting new boosts to the creative sector in July 2023. Since then, the rules surrounding the Audio-Visual Expenditure Credit (AVEC) have firmed up. These measures were revealed in an effort to simplify the tax reliefs offered in the creative sector. The AVEC will eventually replace the current film, high-end TV, animation and children’s TV tax reliefs.

However, to give support where it’s most needed, the Independent Film Tax Credit, or IFTC, was also recently revealed. Qualifying low budget British film productions can access a higher rate of relief through the IFTC.

The IFTC will support more indie film production in the UK, in order to encourage British films to stay in the UK and combat the pull of attractive foreign tax incentives. The IFTC brings the UK’s film tax relief in line with other international film reliefs. For example, Ireland recently increased the uplift available for low budget films from 32% to 40% to better support home-grown film talent. The UK government’s efforts to overhaul creative tax reliefs follows the same pattern.

What is the IFTC?

The government released the specific regulations for the Independent Film Tax Credit (IFTC) on 9^th October 2024, which ratify the expenditure credit and enable film productions to claim back some of their costs each year.

The IFTC offers an uplift of 53% compared to the normal rate of 34% for other productions. Lower-budget productions are eligible for this higher rate of relief, subject to meeting the requirements for the scheme.

The IFTC is an enhanced version of the Audio-Visual Expenditure Credit, which can be used to reduce a company’s corporate tax liability for the current period or previous periods, any other liabilities, transferred to other group companies or even can be claimed as a cash credit. It operates in the same way, but with a higher rate of relief to support the productions that need it the most.

What are the criteria?

The IFTC is designed to provide a greater level of support for small-budget film productions. As such, the productions which can claim the enhanced credit rate can only have a total budget of up to £15 million.

However, the government recognised that this may unfairly penalise those with budgets just over the limit. The regulations laid out now enable projects which are slightly larger than this limit to still access the supports they need. Productions with core budgets (i.e., expenditure on pre-production, principal photography and post-production of the film) of up to £23.5 million can also claim the IFTC.

Though these larger budget productions may claim for the higher rate, there are limits imposed to ensure proportionate benefit. The IFTC has a cap on the total cash credit receivable of £6.36 million (which is based on claiming the full £15 million expenditure). If a film’s budget exceeds £15 million, the production company can choose either to continue to claim IFTC at the higher rate up to the cap of £6.36 million or choose instead to claim AVEC at 34% on all its qualifying expenditure.

As per all other film productions claiming an expenditure credit, enhanced or not, the film must meet the minimum criteria of a British film:

• it is intended for theatrical release
• it is certified as British
• at least 10% of core expenditure on the film is UK expenditure

To be certified as British, the film will need either a final or interim certificate from the British Film Institute (BFI). This can be obtained through an application to the BFI and by passing the Cultural Test.

In the case of the IFTC, the films must also have 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.

Finally, companies claiming the IFTC cannot make separate claims for the visual effects and animation uplifts, even if these are part of the production. This is because the enhanced rate has been calculated to meet the requirements of lower-budget films specifically.

When does the IFTC come into effect?

From 30 October 2024, eligible companies will be able to apply for BFI certification for this enhanced uplift. However, it will only apply to productions wherein the principal photography began on or after 1 April 2024. HMRC begins accepting applications on 1 April 2025.

How can companies claim IFTC?

As with the standard rules in the AVEC scheme, a qualifying company can claim the IFTC on the lower of:

• up to 80% of its core expenditure on a film
• the amount of UK core expenditure

Core expenditure does not include marketing, distribution or financing costs.

Before making the claim, companies need to work out the amount of expenditure credit they are owed and how it will be used. Expenditure credits, as an above-the-line credit, are taxed at your Corporation Tax rate before being used to pay off your tax liabilities.

• Company A has £15 million in UK-based core costs and pays corporation tax at 19%. The company claims IFTC on 80% of its core costs (as this is lower than the total of UK-based costs) at 53%, claiming £6.36 million. As the expenditure credit is taxed at 19%, the company receives a benefit of £5.15 million. Under the AVEC scheme, Company A would only receive £3.3 million at the lower rate.
• Company B has £15 million in UK-based core costs and pays corporation tax at the main rate of 25%. The company claims IFTC on 80% of its core costs (as this is lower than the total of UK-based costs) at 53%, claiming £6.36 million. As the expenditure credit is taxed at 25%, the company receives a benefit of £4.77 million. Under the AVEC scheme, Company B would only receive £3.06 million at the lower rate.
• Company C has £23.5 million in UK-based core costs and pays corporation tax at the main rate of 25%. The company claims IFTC on its core costs at 53%, but can only claim back £6.36 million, as it hits the cap. As the expenditure credit is taxed at 25%, the company receives a benefit of £4.77 million. Under the AVEC scheme, Company C would receive £4.79 million.

Claimants can access their entitlement by claiming for tax relief on the Company Tax Return (CT600). It can be used to pay off tax liabilities, surrendered to other group companies or paid as a cash credit.

As an enhanced version of the AVEC, all claims will need to be submitted with an Additional Information Form (AIF). Companies must also retain evidence of meeting the requirements of the scheme, in case HMRC opens a review of the claim.

Get in touch with Myriad

This can be a complex process, particularly for companies with multiple productions who may be seeking to create multiple trades for tax purposes. If you have any questions about eligibility or want to know more about the best tax treatment for your independent film, get in touch with Myriad.