Last year, the Government confirmed its commitment to the UK’s audio-visual tax reliefs and, after consultation, announced a number of changes to the current rules. The detail of those changes was made available recently, when the Government published draft legislation on the proposed reform of the film, television and video games tax reliefs to expenditure credits.
With specific regard to film and television, we’ve summarised the key points covered by the draft legislation. Many of the familiar features of the existing Creative Sector Tax Relief system have been retained, including:
- UK expenditure defined as expenditure on goods/services “used or consumed” in the UK.
- The mechanism for apportioning expenditure between UK and non-UK remains a “just and reasonable” basis.
- The TV minimum expenditure test remains at £1 million of core expenditure per hour of slot length.
- The 80% cap is retained – UK core expenditure in excess of 80% of total core expenditure will not generate credit.
- The minimum UK core expenditure threshold remains 10% of total core expenditure.
The Expenditure Credit will be received net of a tax deduction at the main rate of corporation tax (currently 25%), so the gross and net value of the relief will be:
- For shows other than animated films, programmes or children’s TV programmes: 34% gross – giving a credit after deduction of tax (at 25%) of 25.5%.
- For animated films, or programmes and children’s TV programmes: 39% gross – giving a credit after deduction of tax (at 25%) of 29.25%.
The main corporation tax rate sum deducted from the gross credit can be utilised in various ways, including being surrendered to other group companies and used to discharge part of their own corporation tax liabilities.
The draft legislation sets out a new definition of a documentary TV programme, focusing on informing the viewer about “real events” and excluding events which have been arranged for the purpose of the programme. This new definition is likely to prove more restrictive than the current regime for certain programme formats.
“Films” and “television programmes” continue to be separately defined, with films needing to have an intention for theatrical release in order to qualify, and television programmes needing to have an intention for broadcast. There does not appear to be any scope for shows to change track.
For TV programmes (other than animations or children’s programmes) each episode must have a slot length greater than 20 minutes in order to qualify. It will not be possible to aggregate multiple shorter episodes to achieve this 20-minute threshold. For example, a series consisting of three 10-minute episodes will not qualify.
A new provision will exclude payments for goods/services supplied by a connected party to the extent they exceed that party’s own costs incurred in relation to the supply. Whilst there is a carve-out for costs of renting studios/land/premises, many other types of supply will fail to attract full relief where the supplier is connected. This could include equipment rental, VFX, postproduction services, rights payments, producer and writer fees, and production fees.
The Government has also sent out the following transition rules for film and television:
- The audio-visual expenditure credit (AVEC) rules will be available to companies with accounting periods ending on or after 1 January 2024.
- If a company’s accounting period begins before 1 January 2024 but ends after 1 January 2024, it will have the option to apply existing rules on expenditure incurred up to 31 December 2023 and apply AVEC rules on expenditure incurred from 1 January 2024.
- For productions where principal photography begins before 1 April 2025, existing rules remain available up to 31 March 2027.
- Existing rules will not be available to productions where principal photography commences on or after 1 April 2025.
The legislation is open to consultation until 12 September. If you’d like to discuss any of the issues raised above, please get in touch with your usual Saffery partner.