Budget: Reforms to the Creative Sector Tax Reliefs

Audio-visual (film, TV and video games) tax reliefs move towards an expenditure credit with a higher rate of relief than the current system.

Creative Sectors tax reliefs increased

The Government will continue to support the UK’s creative industries by reforming the audio-visual (film, TV and video games) tax reliefs into expenditure credits with a higher rate of relief than under the current system. The Government will also extend the temporary higher rates of theatre, orchestra, and museums and galleries tax reliefs for two further years from April 2023.

Reforming film, TV and video games tax reliefs to refundable expenditure credits

For accounting periods ending on or after 1 January 2024, film, TV and video games production companies can claim expenditure credits on eligible productions rather than an adjustment to the company’s taxable profit as under the existing regimes. Two expenditure credit regimes will be introduced and have been based on the design of the existing Research and Development (R&D) Expenditure Credit regime. These are:

  • Audio-Visual Expenditure Credit (AVEC) – to cover the four existing film and TV tax reliefs; and
  • Video Games Expenditure Credit (VGEC).

The above will entitle companies incurring eligible expenditure on qualifying production activities a rate of relief of 34 percent for video games, film and high-end TV; whilst animation and children’s TV will have a rate of 39 percent. The current tax reliefs will close to new productions from 1 April 2025. Films and TV programmes that have not concluded principal photography, and video games that have not concluded development by 1 April 2025, may continue to claim relief under the current regime until 31 March 2027 or will be able to opt into the new regime.

Extension of temporary rates for theatre (TTR), orchestra (OTR), and museum and gallery (MGETR) tax reliefs

The current headline rates of relief for the TTR, OTR and MGETR will be extended for two years. The rates for TTR and MGETR, which were due to taper to 30 percent (for non-touring productions) and 35 percent (for touring productions) on 1 April 2023, will remain at 45 percent and 50 percent respectively until 31 March 2025. From 1 April 2025, the rates will be 30 percent and 35 percent. For TTR, the rates will return to 20 percent and 25 percent on 1 April 2026. The rates for OTR will remain at 50 percent for expenditure taking place from 1 April 2023, reducing to 35 percent from 1 April 2025 and returning to 25 percent from 1 April 2026.

MGETR will expire after 31 March 2026 and no expenditure after this date will be eligible for relief.

Further changes include:

  • Reduction in the minimum slot length for a high-end TV production to be eligible for AVEC from 30 to 20 minutes (however it will remain 30 minutes under existing high-end TV tax relief);
  • For VGEC, only UK expenditure will qualify whereas under the existing regime both UK and European Economic Area (EEA) expenditure are eligible;
  • EEA expenditure in TTR, OTR and MGETR will no longer be eligible for tax relief for new productions from 1 April 2024; and
  • Several administrative changes which will include an anti-abuse measure on payments between connected parties.