Reform of the creative sector tax reliefs

Following the announcement in the Autumn statement 2023 of proposals for various changes to the creative sector tax reliefs, measures have been included in a Finance Bill which is now going through Parliament.  

The most substantive proposal is for the four audio-visual tax reliefs – Film Tax Relief (FTR), High-End Television Tax Relief (HETV), Animation Tax Relief (ATR) and Children’s TV Tax Relief (CTR) – to be replaced with a single Audio-Visual Expenditure Credit (AVEC), with a similar Video Games Expenditure Credit (VGEC) being introduced to replace the existing Video Games Tax Relief (VGTR).  

Various technical amendments are also proposed to Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR), and Museums and Galleries Exhibition Tax Relief (MGETR).  

The new expenditure credit regimes 

The new AVEC and VGEC will both be calculated as “above the line” expenditure credits, modelled on the existing R&D expenditure credit regime. Qualifying expenditure for each of the categories of production will be calculated broadly in the same way as is currently the case (subject to a few changes, some of which are highlighted below). An expenditure credit will then be calculated as a set percentage of this qualifying expenditure, depending on the production category, as follows:  

• Expenditure on non-animated films, television programmes and video games will all attract a rate of 34%.  
• Expenditure on animations (whether films or television programmes) and children’s television programmes will attract a rate of 39%.  

The expenditure credits will form part of taxable profits. They will typically be used against any corporation tax liabilities for the period, but a proportion of any excess credit may be used to discharge other liabilities of the company (or its group members), or repaid.  

The qualifying conditions for each production category will remain largely unchanged from those that apply to the existing regimes. There will however be some changes, with the main changes being a reduction in the minimum slot length per episode for television programmes (other than animations or children’s television programmes) from 30 minutes to 20 minutes, and the introduction of a formal definition of “documentary”.  

For all types of production, a minimum of 10% of core expenditure must be “UK expenditure” (i.e. expenditure on goods or services used or consumed in the UK). The £1 million cap that applies to subcontracted expenditure under the existing VGTR regime will be removed. In order to qualify for relief, payments to connected parties must be no more than the amount that would have been paid on an arm’s length basis. Qualifying expenditure, for the purposes of calculating the expenditure credit, will be the lower of 80% of core expenditure, and the amount of that expenditure that is “UK expenditure”.  

Companies will be able to claim under the new AVEC and VGEC regimes for expenditure incurred from 1 January 2024. Companies with new productions starting on or after 1 April 2025 will need to claim relief under the new expenditure credit regimes and all productions, even if they commenced before 1 April 2025, will be required to claim under the new expenditure credit regimes from 1 April 2027. The existing audio-visual and video games tax reliefs regimes will cease to operate on 1 April 2027.  

Changes to the cultural tax reliefs 

A number of technical changes are being made to the cultural tax reliefs, comprising TTR, OTR, and MGETR. The key changes can be summarised as follows:  

• Consistent with the position for the new expenditure credits, in all cases, a minimum of 10% of core expenditure must be “UK expenditure”, and tax reliefs will be calculated on the basis of the lower of 80% of total core expenditure, and the amount of this that is “UK expenditure”.  
• Again, consistent with the position for the new expenditure credits, in order to qualify for relief, payments to connected parties must be no more than the amount that would have been paid on an arm’s length basis. 
• The tax reliefs will not be available to companies that are in administration or liquidation. 
• Expenditure incurred on the provision of incidental goods and services to members of the audience, or visitors to an exhibition, will be excluded from the definition of expenditure that can qualify for tax relief. 
• Theatrical productions will be excluded from TTR where the main purpose of the audience is anything other than to observe the performance. 
• Exhibitions that do not require physical admission will not be eligible for MGETR.  

Administrative changes 

Lastly, a number of more administrative changes will be introduced. Most significantly, the government will introduce a new information form which will need to be prepared and submitted by all companies claiming under any of the creative sector tax reliefs from 1 April 2024.  

Other measures will be introduced to target perceived anomalies in the legislation relating to issues such as time limits for making claims and HMRC’s powers to make discovery assessments.  

How can Moore Kingston Smith help? 

The above is only intended to provide a brief summary of the measures in the Finance Bill 2023-24 affecting the various creative sector tax reliefs, and the changes noted above are not exhaustive. Please do not hesitate to contact us should you have any queries about the changes or simply wish to discuss any of the above points further.