Exporting British Culture to the World – don’t miss out on Creative Industry Tax Credits!
Some of the worlds most renowned creative works have been published, created and performed on these shores - the UK’s creative industries certainly have a lot to be proud of!
Over the past 20 years the government has introduced a number of “creative industry” tax reliefs to incentivise the output of creative works that promote British culture to the rest of the world. The first such relief was film tax relief which was introduced back in 2007 (not to be confused with section 42/48 tax relief introduced in 1992 which was closed down due to its use by many as a tax avoidance tool). This relief was then extended to seven other creative industries: animation, high-end television (both in April 2013), video games (April 2014), theatres (September 2014) children’s television (April 2015), orchestras (April 2016) and museums and galleries (September 2017). The eight tax reliefs follow a very similar framework, all of which enable a payable credit to be claimed where a production, game, play, etc makes a taxable loss in an accounting period. This rate had tended to equate to between 20% and 25% of qualifying core expenditure incurred in the UK or EEA.
Unfortunately, five years ago, the world was hit by the COVID pandemic. The arts and creative industries were some of the worst affected both financially and on a wider scale. To the credit of the previous government, post-COVID budgets gave a massive boost to the creative industries in the following ways:
- In October 2021, it was announced that the payable credit rate for three of the reliefs – theatre tax relief, orchestra tax relief and museums and galleries exhibition tax relief would be temporarily increased from 20% and 25% for non-touring and touring productions respectively to 45% and 50%, effectively doubling the relief.
- These rates were originally intended to be reduced to 30% and 35% respectively from 1 April 2023 and then back to the original rates on 1 April 2024. However, subsequent budgets maintained the higher 45% and 50% rates, which will reduce only slightly to 40% and 45% from 1 April 2025.
- Further to this, the museums and galleries exhibition tax relief was intended to be a temporary relief which was to cease operating after 31 March 2024. This “sunset clause” was then extended to 31 March 2026, before being made a permanent relief in the 2024 Spring Statement.
- In the 2023 Spring Budget, it was announced that the other five reliefs were to merged into two new schemes, namely audio-visual expenditure credit (AVEC) and video games expenditure credit (VGEC). Four of the reliefs (film tax relief, animation tax relief, high-end television tax relief and children’s tax relief) are being merged into the AVEC scheme, whilst the video games tax relief scheme will be replaced by the VGEC scheme.
- There is some overlap between the outgoing and incoming schemes, with the existing tax relief schemes running until 2027 in tandem with the new schemes which were available from the start of 2024. However, any films, programmes or games that have not commenced by 31 March 2025 will be required to utilised the new scheme(s).
- The new schemes have some clear advantages; only 10% of core expenditure needs to be incurred in the UK as opposed to 25% across the EEA (including the UK), and for video game developers the subcontracted expenditure limit per game (£1m) has now been abolished. There were also some complicated loss relief rules in existence under the outgoing regimes which will now be defunct in terms of preventing companies from claiming a maximum credit.
- The rates of relief available under AVEC and VGEC range between 34% and 39%, although these are taxable meaning that the effective rates range between 25.5% and 29.25%. A rate of 53% will be available under the independent film tax credit (IFTC) scheme from April 2025 for lower budget films (broadly under £23.5m budget), which therefore has an effective rate of 39.75%.
As a whole, it is clear that the current government is intent on keeping the creative industry rates that were implemented by the previous government. The longer term future of these credits is less clear, so eligible companies should look at what is available to them, particularly when assessing whether to utilise the incoming or outgoing schemes (in situations where there is a choice).
For further information please don’t hesitate to contact hello@yes.tax.
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