Credit where it’s due!
At a time where the Government is having to tighten its purse strings and make tough decisions regarding tax policies across all aspects of the UK tax network, it makes a nice change to see that the creative industry tax relief scheme has been made more beneficial to claimants who have been one of the worst affected by the pandemic, helping several organisations to get back on their feet.
The eight creative industry tax reliefs have been around for several years. Until now, the reliefs have followed a very similar structure in the way in which they have been administered. Although the rates between schemes have varied based on the exact relief being claimed and (for certain tax reliefs) whether a production is “touring” or “non-touring” the relief has always been administered through an enhanced deduction and has required the splitting of productions/games between trades.
From 1 January 2024, four of the reliefs (film, high-end television, animated television and children’s television) will come under the new Audio-Visual Expenditure Credit (AVEC) umbrella. As well as this, the video game tax relief scheme will be replaced (over time) by the Video Game Expenditure Credit (VGEC) scheme. Both reliefs will be paid through credits rather than a tax relief mechanism in a similar way to which the current large company R&D tax relief scheme (RDEC) works.
The new AVEC and VGEC schemes will be mandatory from April 2025, with the exception being for productions or games that have commenced but are still in the early stages of production. These productions/games will be able to utilise either scheme until April 2027 at which stage the AVEC or VGEC scheme will become mandatory.
The obvious question here is which scheme is better? The inevitable answer from a tax advisory perspective is that it depends! Some of the factors that will affect this include:
- Is the claim predominantly composed of employees or subcontractors?
- Is most of the company’s core expenditure incurred in the UK or elsewhere in the EEA?
- What is the company’s tax situation in terms of losses brought forward and/or level of profitability, given the change in corporation tax rates from April 2023?
The new scheme has some advantages, such as the abolition of the £1m subcontracted expenditure per game cap on VGEC, but there are some disadvantages such as non-UK expenditure being invalid for additional relief and the implementation of a PAYE and NI contribution cap which will impact loss-making productions and games with a high reliance on subcontractors. As such, the facts of the case should be considered in full for the company as a whole, as well as the individual productions and games being developed.
In terms of the remaining three creative industry reliefs covering theatres, orchestras and museums/galleries/exhibitions, there are no current plans to introduce a credit-based scheme. However, since October 2021, the rates of relief available in these three areas have seen generous increases to help curb the overall impact of COVID-19 over the past few years on affected organisations.
For two of the reliefs (theatre relief and museums, galleries and exhibitions relief), there are two separate tax credit rates which depend on whether a production is touring or not. Touring productions can claim a credit at a rate of 50% until March 2025, whilst non-touring productions can claim a credit at 45% until the same date. For a year following this, the rates reduce to 35% and 30% respectively, and from April 2026 the rate will return to 20% for theatres. The museums, galleries and exhibitions relief is due to be abolished from this date, but this date has already been extended so there is hope yet that this will happen again. The third relief (orchestral relief) has the same rates and dates as touring productions for the other two reliefs.
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