Independent Film Tax Credit: A Complete Guide

The UK is globally recognised as a powerhouse for creativity, especially in film. In July 2023, the government announced exciting new boosts to the creative sector to further support that international reputation: the Audio-Visual Expenditure Credit (AVEC).

However, to give support where it’s most needed, the Independent Film Tax Credit, or IFTC, was also 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, to encourage British films to stay in the UK and bringing the UK’s film tax relief in line with other international film reliefs. With the IFTC, we can expect more homegrown film successes in the cinemas.

What is the IFTC?

The Independent Film Tax Credit (IFTC) is an enhanced version of the flagship Audio-Visual Expenditure Credit, designed to support lower-budget film productions in the UK. The IFTC offers eligible companies an uplifted credit of 53% compared to the normal rate of 34% for other productions.

The government released the specific regulations for the Independent Film Tax Credit (IFTC) in October 2024.

As an enhanced version of AVEC, the IFTC 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.

If you’re looking for more information on the AVEC, check out our webinar on the Fundamentals of the Audio-Visual Expenditure Credit.

What are the qualifying criteria?

The IFTC is designed to provide a support for small-budget film productions. You’ll need to be working on a film in the UK that meets both the budget and the content and production requirements of the IFTC.

Lower Budget

The productions which can claim the enhanced credit rate can only have a total budget of up to £15 million.

However, this may unfairly penalise those with budgets just over the limit, so the regulations laid out allow projects larger than this limit to still access the supports they need. To this end, productions with core costs 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 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.

Eligible Film Production

Like 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.

However, the IFTC has an extra condition to qualify. 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 the film must be an official British co-production.

Finally, companies claiming the IFTC cannot make separate claims for the visual effects and animation uplifts (39% versus the usual 34%), even if these are part of the production.

When does the IFTC come into effect?

Eligible companies can apply for BFI certification for this enhanced uplift at any time. To claim the IFTC, companies need to submit their claim at the end of their accounting period. The IFTC is cumulative, meaning you can claim each year for productions that cross multiple accounting periods, or claim for the entirety of your production once the production is finalised.

However, the IFTC only applies to productions wherein the principal photography began on or after 1 April 2024.

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 costs do not include marketing, distribution or financing costs.

Before making their 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.

The amount you receive depends on your budget and your Corporation Tax rate:

Example 1

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.

Example 2

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.

Example 3

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.

Submitting Your IFTC Claim

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.

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.