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Learn to identify core costs, navigate UK expenditure rules, and apportion expenses properly for a maximised AVEC claim.
Understanding the ins and outs of qualifying expenditure is key to maximising your Audio-Visual Expenditure Credit (AVEC) claim. While the concept of "core costs" might seem straightforward, the specifics can vary greatly between productions. From defining eligible UK expenditure to navigating the complexities of production phases and apportioning costs, there’s a lot to consider.
You can only claim AVEC on core expenditure in the UK, i.e., expenses for pre-production, principal photography and post-production of a film or TV programme.
Production companies can claim the lower of:
This means that a company with costs entirely incurred in the UK can only claim 80% of those costs.
A company with less than 80% of the total core costs in the UK can only claim the actual amount of UK expenditure (so long as it is more than 10% of the core costs, as this is a requirement for eligibility).
Unlike other tax relief schemes, there is very little restriction on what those costs can be. Staff costs, subcontractors, freelancers and all other kinds of services can be included to the extent that they are based in the UK. Goods are also entirely eligible, based on the same condition.
There are four phases of development, according to the legislation: development, pre-production, principal photography and post-production. The latter three phases are entirely eligible for AVEC.
Additionally, once the production is complete, costs incurred in commercialising and marketing cannot be claimed either, as these are not relevant to the actual production of the film or TV programme. Though development and commercialisation work is essential to the success of the production, these costs are not actually related to the development of the film or TV programme.
It's crucial to identify when costs become eligible. Costs incurred during the “development phase” are ineligible for AVEC.
The development phase ends when the project is “green-lit”, i.e., the production is confirmed to proceed. Costs in the development phase are speculative and cannot be claimed for this reason.
However, once the production goes ahead, some of these costs may be claimed in a certain proportion depending on their use in the following phases.
For most productions, these phases are straightforward. For animations, principal photography includes final rendering.
These phases may occur concurrently; elements of pre-production and even post-production might continue alongside principal photography.
Though production may not always occur sequentially, claimants must split out development costs from pre-production, principal photography and post-production costs.
Some personnel will be involved from development to commercialisation, like the director and producer. Some one-off costs are typically incurred in the development phase, like the screenplay. It will likely be reworked throughout the production and used in development, pre-production, principal photography, and post-production.
Knowing how to include these different costs and in what proportion is essential for making a valid claim.
Expenses must be apportioned on a “fair and reasonable basis". There are multiple ways you can define this according to the cost.
Annual fees may be apportioned based on the time spent in the development phase versus the other phases (e.g., a director’s fee may include 3 months of development versus 9 months of production). For a script, it may be that the initial cost was during the ineligible development phase, but later versions of the script (and thus the fees for their editing) can be included.
We recommend that you make a note of your apportionment methods when working out your costs, in the event of HMRC investigating your claim and asking for these details. You may even wish to provide this information to HMRC with your claim.
Expenditure on the rights to use a story or book as the foundation for a film or TV programme qualifies as production expenditure. However, costs related to broader rights that are unnecessary for production do not qualify. For example, acquiring the rights to use and commercially exploit characters from a book for purposes outside of film or TV production would fall outside this scope.
Generally, a payment for an option over the right to use a book or story would be speculative, while purchasing the rights needed to make the production is a core expenditure.
Since costs must be relevant to the production of the film or TV programme, there are certain categories of costs that cannot be included, as determined by the legislation.
These are:
Claimants can only include money spent on goods and services in the UK. In some instances, it may not be immediately clear where costs have been incurred.
To include costs on staff, subcontractors and other personnel, the person must be physically based in the UK. This applies no matter their nationality. Remote workers are subject to the same condition.
Services can be claimed so long as they are used or consumed in the UK. For example, if a scriptwriter provides scriptwriting services and the script is entirely used in the UK, this cost will be allowable. If it is used abroad, an apportionment must be made based on this usage.
Transport costs can qualify if at least the origin or destination is in the UK. However, CGI, SFX and VFX must be entirely based in the UK.
We’ve written a full guide to claiming the Audio-Visual Expenditure Credit, with details on qualifying productions, how to pass the BFI’s cultural test, calculating your credit and making your claim.
Download the eBook here.
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Learn to identify core costs, navigate UK expenditure rules, and apportion expenses properly for a maximised AVEC claim.
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