On Tuesday 18 July, the UK government published draft legislation for potential inclusion in the next Finance Bill. Financial Secretary to the Treasury, Victoria Atkins, explained that the draft legislation has been published to allow for technical consultation and to provide taxpayers with predictability over future tax policy changes, as well as to seek stakeholder views at this stage. The final contents of the next Finance Bill will be a decision for the Chancellor.
From a film and TV perspective, the most relevant proposals in the draft legislation involve proposed changes to the audio-visual tax reliefs in the UK, on which the government held a four month consultation process with stakeholders in the audio-visual industries, including film and TV.
The government currently offers 8 creative industry tax reliefs covering film, animation, high-end TV, children’s TV, video games, theatre, orchestra and museums and galleries. Within these 8 reliefs, there are 4 film and TV related audio-visual reliefs: film tax relief (FTR), animation tax relief (ATR), high-end TV tax relief (HETV) and children’s TV tax relief (CTR) (Audio-Visual Tax Reliefs).
The Audio-Visual Expenditure Credit
Background
Under the draft Finance Bill, the government proposes to reform all Audio-Visual Tax Reliefs to “above the line, refundable expenditure credits” - the Audio-Visual Expenditure Credit (AVEC).
Under the current audio-visual tax relief system, pursuant to the Corporation Tax Act, an increased corporation tax deduction is given for qualifying expenditure which either reduces the company’s profit and therefore the corporation tax due or, where the additional deduction creates a loss, allows that loss to be surrendered to HMRC for a payable tax credit.
The AVEC
Under the AVEC, the benefit is delivered as a taxable ‘above the line’ credit, in the main body of the company’s income statement before the corporation tax charge. The relief is obtained by working through a number of steps in a prescribed order. Very broadly, the credit must be offset first against the company’s existing corporation tax liability, then against the tax liability of another company in the group, then to discharge other outstanding tax liabilities the company may have (e.g., VAT) and finally, where unused relief is still available after those steps, the remaining relief can be claimed as a cash payment. This is similar to the existing R&D Expenditure Credit Scheme (RDEC).
Although this proposal is something we would expect accountants to weigh-in on, we anticipate that the process of off-setting tax liabilities under the proposed AVEC scheme would be more prescriptive for a business than the process under the existing audio-visual tax relief system. In particular, the current scheme does not prescribe the order in which the relief should be applied, nor does it stipulate which specific tax liabilities the credit should be applied to, notably the requirement to discharge a group company’s tax liability.
Comparing the existing tax reliefs with the proposed AVEC
- The eligibility terms, qualifying criteria and other rules for the current audio-visual reliefs will mostly be carried across into the AVEC, including the 80% cap on qualifying expenditure.
- Qualifying expenditure for the AVEC will be defined in the same way as under the current relief system — expenditure that is ‘used or consumed in the UK’ – and it will still be calculated on a cumulative basis.
- The new AVEC will replace the current film tax relief (FTR), animation tax relief (ATR), high-end TV tax relief (HETV), and children’s TV tax relief (CTR), so there is just one scheme which applies to all.
- To ensure fairness, “animation” will be extended to include animated theatrical films as well as TV programmes.
- AVEC will also introduce a new minimum slot length for high-end TV programmes of 20 minutes, on an episode-by-episode basis, and a definition for documentary programmes as follows (which is helpful given that the HETV includes documentaries if they qualify):
- “A television programme is a documentary if— (a) it is intended to inform the viewer about real events, (b) those events have not, to any significant degree, been arranged for the purposes of the programme, and (c) either— (i) the events are not depicted by one or more persons playing roles, or (ii) to the extent that the events are depicted in that way, the depiction is ancillary to a written or spoken narrative.” (Section 1179DF(2) of the Draft Finance Bill)
- The credit rate for films and high-end TV will be 34%, which is a slight increase compared to the current schemes, and animation and children’s TV will receive a rate of 39%.
- To safeguard the new credit regimes, rules will be introduced to prevent abuse of the higher rates of relief for animation and children’s TV.
Key dates
For accounting periods ending on or after 1 January 2024, film and TV production companies can claim the AVEC on eligible productions rather than an adjustment to the company’s taxable profit per the existing regimes.
The current tax reliefs will close to new productions from 1 April 2025.
Films and TV programmes that have not concluded principal photography by 1 April 2025 may continue to claim relief under the current regime until 31 March 2027 or can opt into the new regime.
21 July 2023
Draft Finance Bill: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1171426/Draft_legislation_-_audiovisual_creative_tax_reliefs_reform.pdf
Explanatory Note:
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