Are you maximising your R&D and creative sector tax relief claims?
Background
The UK’s creative industries are globally renowned for technical innovation and cultural impact. HM Government provide tax incentives to help maintain the UK’s competitive edge in the global creative landscape, fostering a vibrant media sector at the forefront of technological advancements.
These tax incentives provide tailored support to media projects, with different benefits available based on a project’s technological or cultural (i.e. promoting UK culture, heritage and identity) characteristics. For the 2022 fiscal year, a total of £1.66 billion was paid out across all the creative industries tax reliefs, and £7.6 billion R&D tax relief across all sectors.
Recent changes to research & development (R&D) and creative tax reliefs signal that it is now more important than ever for media companies to review how they prepare claims and to consider the interaction between the different incentive schemes.
R&D tax relief
R&D tax relief, available on costs relating to the technological aspects of projects, for Small and Medium-sized Enterprises (SMEs) has traditionally been structured as an ‘enhanced deduction’ reducing the amount of corporation tax a company needs to pay (or if not profitable, losses can be surrendered for a payable tax credit). More recently, these have transitioned to lower, but more visible ‘above the line’ expenditure credits, which can be used to pay off tax liabilities or received as a payable credit. Research & Development Expenditure Credits (RDEC) provide a 20% credit of qualifying expenditure.
This transition to RDEC, coupled with a requirement for a UK-based workforce, is one of several significant changes to the R&D scheme, impacting what benefits are available, to whom, and how claims should be prepared.
Creative sector reliefs
The eligibility across the various creative sector credit regimes is broadly based on an intention for the productions to be broadcast or publicly released, with the BFI assessing the production against a British cultural test and a minimum UK spend.
Also transitioning to an ‘above the line’ model from 1 January 2024 the Video Games Expenditure Credit (VGEC) and Audio-Visual Expenditure Credits (AVEC) provide a 34% credit on qualifying production expenditure, rising to 39% for children’s TV programmes or animated productions, and certain VFX spend. This rises to 53% where a film qualifies under the new Independent Film Tax Credit regime (aimed at productions with a budget of less than £15 million).
How do the reliefs interact?
For companies developing a video game or an FX-intensive film – which may have both technological and creative/cultural elements – securing the maximum benefit on mutually exclusive expenditure relies on careful consideration of the interaction between the R&D and creative sector reliefs. This becomes more critical in light of recent changes to these regimes.
What do I need to do?
Navigating the evolving landscape of government incentives is crucial for media companies aiming to maximise their financial benefits. Our expertise can guide you through these complexities, help you understand the eligibility criteria holistically, optimise your claims process and stay compliant with HMRC’s requirements.
We are offering a free consultation to those media businesses considering submitting claims. If you would like to book one of these consultations with either Claire or David, or to talk through how the two incentives interplay within a given project, please email sophiewalker@mks.co.uk.
