Changes to audio-visual tax reliefs in the UK

United Kingdom

Following a period of consultation in which much of the industry has been actively engaged, the Chancellor of the Exchequer announced in this week’s Spring Budget the package of reforms that will apply to audio-visual tax reliefs in the UK.

The reforms are applicable to all 5 audio-visual tax reliefs (film, high-end TV, children’s TV, animation and video games) and one of the changes at the heart of the reforms is the decision to move all the tax reliefs to expenditure credits. This will be implemented by way of two models:

  • one for film and TV expenditure credits (the Audio-visual Expenditure Credit); and
  • one for video game expenditure credits (the Video Games Expenditure Credit).

Both models will retain the existing eligibility requirements and definitions, other than as specifically set out in the reforms. This article focuses on the key changes brought about by the new Audio-visual Expenditure Credit.

What are the changes to the tax relief rates? Is there still a cap?

One of the changes catching the industry’s attention is the new credit rates, which (at first glance) appear to offer a significant increase to the existing tax relief rates. 

Under the current regime, companies can claim up to 25% of qualifying UK production expenditure which is capped at 80% of total core expenditure; meaning, in theory, the maximum that can be claimed by way of the relief is 20% of the total production budget. Under the new model, film and high-end TV programmes will have a headline credit rate of 34% and children’s TV programmes and animations will have a headline credit rate of 39%.

Despite industry concern that the 80% cap leads to companies placing more ‘portable’ expenditure such as visual effects elsewhere, the Government has announced it will maintain the 80% cap on expenditure (with the promise to consider the case for further targeted support for visual effects work later in the year).

This means that, in effect, the maximum gross amount that can be claimed by way of the new expenditure credits is 27.2% of the total production budget for film and high-end TV and 31.2% of the total production budget for children’s TV and animations. As per the current regime, there is no cap on the amount that can be claimed.

On the face of it, this appears to be a significant increase in the potential relief available under the new regime. However, it should be noted that, part of the reasoning behind these changes is to pre-emptively protect the creative sector from global tax reform following the UK’s adoption of the OECD Pillar 2 framework. Under the new model, such expenditure credits will be taxable and, from 1 April this year, the notional rate of UK Corporation Tax will stand at 25%.

Therefore, after tax, the net credit rates will be 25.5% for film and high-end TV programmes (only a small increase from the existing 25%) and 29.25% for children’s TV programmes and animations, in each case, then subject to the 80% cap.

The idea of capping the amount of the credit at the amount of the claimant company’s PAYE and NICs bill for the relevant period (being a provision that exists in the equivalent Research and Development relief, on which the new credit is modelled – see further below) has thankfully been dropped. This is good news as it might otherwise have rendered the credit unworkable in practice, given that production company staff tend to be freelance rather than employees.

What else has changed to the eligibility requirements and definitions?

In short, not a lot.

The key changes relate to the types of programmes that will be classified as high-end TV. Under the current regime high-end TV programmes are programmes that:

  • are a drama, comedy or documentary;
  • have a slot length of greater than 30 minutes; and
  • have an average core expenditure, per hour of slot length, of not less than £1 million.

The most significant change to this is that the minimum slot length for high-end TV programmes has been reduced to 20 minutes, applicable on an episode-by-episode basis. This is a balancing act to, on the one hand, address the Government’s concern surrounding claimants bundling together short episodes of a programme which were commissioned together as one programme in order to qualify for the high-end TV tax relief, whilst accommodating the industry’s concerns about not limiting the pool of programmes that can seek to qualify for the credit.

It has been confirmed that, for now, the £1 million per hour expenditure threshold for high-end TV will remain unchanged. Whilst this has caused many to breathe a sigh of relief after fears it may be increased, this does still mean that a 20-minute episode would require a budget of approximately £333,333 for that episode which remains substantial and will continue to exclude a significant amount of programming produced in the UK from the regime.

Another important change is that the Government proposes to include a definition of “documentary” into the relevant legislation in order to provide clarity. The definition will apparently be based on current guidance from the BFI and will not only apply to programmes seeking to qualify under the Audio-visual Expenditure Credit but also to programmes claiming under the existing high-end TV tax relief regime.

How will the new model actually work?

Most notably, the move will change the way the relief is calculated - the Government has said it will use the existing Research and Development Expenditure Credit as a basis for the new expenditure credits, adapted “to ensure the exact process of claiming the expenditure credits is designed in a way that will work effectively for the audio-visual subsectors”. Query then exactly how this will work, but the current steps to calculate the Research and Development Expenditure Credit are set out by the Government in its response to the consultation on audio-visual tax reliefs as follows:

  1. The expenditure credit discharges the Corporation Tax liability for the accounting period to which the expenditure credit claim relates.
  2. If the amount of credit remaining after step 1 exceeds the net value of the credit (gross credit minus the notional main Corporation Tax rate), you must use the net value of the credit in step 3. The remainder is carried forward for use in future accounting periods.
  3. The credit must not be higher than your company’s total expenditure on your workers’ PAYE and NICs for the accounting period. Amounts in excess of the cap can be carried forward for use in future periods (as noted above, the Government has confirmed this step will not apply in the Audio-visual Expenditure Credit regime).
  4. The remaining amount is used to discharge any outstanding Corporation Tax liabilities for any accounting periods.
  5. The credit can be surrendered in whole or part to any group member.
  6. The credit can be used to discharge any other company liabilities.
  7. The final amount can be paid to your company.

Despite the changes to the method of the calculation, companies claiming the Audio-visual Expenditure Credit (and lenders advancing monies against it) will still want the production entity to be an SPV in order to maximise the amount paid out at step 7 (as the SPV is unlikely to have other tax liabilities which would otherwise reduce the amount of the repayable cash credit – NB that, under step 5 above, surrendering the credit to group companies is not compulsory). 

Finally, it is worth noting that under the Research and Development Expenditure Credit regime the ability to use the credit to discharge other company liabilities pursuant to step 6 means other tax liabilities. As such, it would appear the status quo will be maintained and the repayable credit will only be payable to the production entity and will not be able to be paid directly to a lender to repay a loan, for example.

When will the changes take effect?

The Government has proposed a transitional arrangement, designed to support companies in adapting to the new expenditure credits. As a result, the expenditure credits will be phased in as follows:

  • The new expenditure credits may be claimed from accounting periods on or after 1 January 2024.
  • Film and TV productions that have begun, but not concluded, principal photography by 1 April 2025, may continue to claim tax relief under the current system until 31 March 2027. However, any expenditure incurred from 1 April 2027 must be claimed under the new expenditure credit regime.
  • Claims for new film and TV productions from 1 April 2025 must be made under the new expenditure credit regime.

Draft legislation in connection with the Audio-visual Expenditure Credit is expected to be published in the summer.


On the whole, the news has been welcomed by the industry. Following a period of uncertainty after the announcement of reforms back in the autumn, the Government has shown its commitment to protecting UK production industry reliefs as part of its objective to maximise the contribution of the audio-visual industries to the growth of the UK economy. Undoubtedly, the increase to the rates available (however slight in reality), the reduction to the minimum slot length for high-end TV and the fact that there will be no increase to the £1 million qualifying threshold for high-end TV is all great news.

However, from the information published to date, the reforms do not appear to seek to address the evolution of the market which has occurred since the film tax credit was first introduced in 2007. For example, will films still have to be intended for the theatrical release or will the requirement be updated to reflect the increase in the number of films being commissioned by the SVODs which may, or may not, have a theatrical release (but will still be broadcast (being the existing requirement for high-end TV)). We guess we’ll find out more in the summer!