In a proactive move anticipating the global tax sector’s restructuring, the UK film and TV industry has given a largely positive response to the government’s plan to reform the film and TV tax reliefs into an expenditure credits system. While industry leaders commend this reform, some producers express disappointment at the lack of additional support for the independent sector.
Under the newly introduced Audio-Visual Expenditure Credit (AVEC), film and TV productions will experience a slight increase in relief, with a more significant boost for Animation Tax Relief (ATR) and Children’s TV Tax Relief (CTR). Films and high-end TV programs will now enjoy a headline credit rate of 34%, translating to an actual relief of 25.5%—a marginal increase compared to the existing 25% relief. However, relief remains capped at 80% of core expenditure.
These reforms aim to safeguard the creative sector from the forthcoming global tax reform following the UK’s adoption of the OECD Pillar 2 framework. This framework aims to prevent profit shifting to low-tax jurisdictions and curb aggressive tax planning by multinational companies.
Industry experts have welcomed the government’s proactive stance in safeguarding the film and TV industry amidst challenging economic conditions. The reforms demonstrate the Treasury’s foresight in addressing potential negative consequences and taking preventative action.
The new system is already successfully implemented for research and development (R&D) tax relief and is regarded as straightforward and transparent. The government is expected to provide detailed guidance on the relief during the summer when the draft legislation will be published.
The implementation of AVEC is scheduled for January 1, 2024. However, film and TV productions that have already commenced principal photography will still be able to claim relief under the existing system until March 31, 2027.
While some independent film producers question why animation and children’s TV receive a higher credit rate (39%) compared to the 34% for independent films, others acknowledge the government’s continuing support for the sector. The focus remains on recognizing the overall government support and the positive impact of tax credits on the UK economy.
UK industry representatives have sought to reassure US studios and streamers that these changes will not adversely affect their operations. The government has engaged in active conversations with the MPAA and studios to ensure clear communication and understanding of the new system.
The government has also indicated the possibility of further reforms to the relief system, considering targeted support for visual-effects work. This has been well-received by leading figures in the VFX industry.
While the new system provides stability and future-proofing for the audiovisual tax reliefs, it may impact the video games industry, as relief will only be available for work conducted in the UK, no longer including EEA expenditure.
Looking ahead, other countries may follow the UK’s lead and amend their film and TV tax relief programs to align with the Pillar 2 framework.
Overall, industry figures applaud the government’s proactive approach in updating and “future-proofing” the audiovisual tax reliefs. The government’s consistent support and responsiveness to industry needs, including the production restart scheme and cultural recovery fund, further demonstrate its commitment to the industry’s growth and success.
Douglas Shanks, Partner, DSC Metropolitan, comments: “There’s too much talk about closing loopholes and not enough emphasis on making the UK attractive to film producers, directors and indeed the cast of actors, writers and the rest of the crew. It’s hard to see the effects of globalization being reversed. The UK has all the resources a filmmaker needs from an educated populace, a discerning market, a great infrastructure including accommodation and stunning scenery. One does despair at the Treasury’s posture, the Ministry for the Prevention of Creative Endeavours.”
