HMRC is winding down the longstanding creative tax relief incentives in favour of the reformed Creative Industries Expenditure Credits. Film and TV producers and video game developers launching projects after 31 March 2025 should review the updated legislation to understand how best to realise the full value of their claims.
What are creative industries tax reliefs
The UK government views support for creative industries as vital for economic growth, job creation and the promotion of British culture worldwide.
As such, tax incentives are available for culturally British Film & TV productions and Video Game developments that pass a cultural test and spend a set proportion of core costs in the UK.
Historically, film and TV companies can claim relief or credits on the lesser of:
- 80% of the total qualifying global core expenditure
- Total qualifying core UK expenditure
Video games have had an expanded scope to include qualifying core expenditure incurred in EEA countries.
Why are tax reliefs changing?
At the time of HMRC’s consultation in 2022, five separate tax relief schemes existed for film and TV productions. This landscape was tricky to navigate for production companies, who often claim more than one type of relief each period. The Video Game Tax Relief (VGTR) scheme was intentionally separated to address unique industry concerns for development companies, such as including subcontracting limits and EEA-related expenditure. However, this separation has introduced broader scope creep over time that made it challenging for HMRC to maintain and enforce.
Increasing complexity in claiming incentives, and rising international competition, has driven HMRC to modernise and simplify the tax relief system for creative media. The outcome is the creation of two new expenditure credit regimes, with the old reliefs being phased out.
- Audio Visual Expenditure Credit (AVEC)
- Video Game Expenditure Credit (VGEC)
While AVEC and VGEC have been available to claim since 1 January 2024, we have recently entered the “transition period” where productions starting on or after 1 April 2025 must claim under the new AVEC/VGEC schemes, whereas companies with existing productions can choose between the old and new schemes until 1 April 2027 depending on which is most beneficial.
What is changing – at a glance
Under the previous system, companies could claim relief either by deducting additional costs from their profits, or by surrendering losses in exchange for a tax credit. With the introduction of AVEC and VGEC, relief now comes in the form of an above-the-line tax credit calculated from eligible production spend, which is treated as taxable income. The new approach aims to simplify the calculation by replicating the tax treatment of the more established Research & Development Expenditure Credit; first introduced in 2013.
* Relative to total expenditure; assumed Corporation Tax rate of 25%
† For eligible high-end TV programmes
Targeted support
While there have been process and efficiency savings in the introduction of the ‘merged’ expenditure credits, the benefit of the new schemes is largely equivalent to the historic ones they replace (~0.5% improvement). The exception is animated and children’s TV programmes, which will benefit from an uplifted headline rate of 39% in the new expenditure credit system to incentivise growth in this subsector.
The Government has also targeted specific subsectors within film and TV demographics with enhanced tax incentives.
VFX additional uplift
The UK is a world-leading centre for Visual Effects (VFX) production in film and TV. In response to growing concerns about VFX work shifting abroad, the Government announced an additional uplift so that qualifying UK VFX expenditure would be exempt from the 80% cap, offered an enhanced headline rate of 39%. This strategic move aims to bolster domestic investment and preserve the UK’s competitive edge in the VFX sector.
Independent Film Tax Credit
Qualifying low-budget independent UK films, whose core expenditure does not exceed £23.5 m, are entitled to claim a more generous enhanced rate of 53% on the qualifying costs (capped at £15 m of global core expenditure). This is an aggressively positive position by HMRC to provide much needed support for the UK’s independent film industry.
What about video game development companies?
The introduction of VGEC has been a mixed bag for video game development companies. The Government has lifted the long-standing cap on subcontracted activities, which will be highly beneficial for medium- to large-scale video game developments. However, this is counteracted with a subtle change of how qualifying core expenditure is calculated from goods and services “incurred in UK/EEA countries” to “used or consumed in the United Kingdom.”
While this moves the VGEC scheme more in-line with its film and TV counterparts; it will undoubtedly change how video game creators need to evaluate their qualifying core costs and could have an impact on the tax benefit.
How can HaysMac help?
Our specialist team brings deep expertise in guiding creative businesses from film and TV to animation and video games – through successful tax relief claims. We offer support in
- Evaluating if productions or development qualify for creative tax reliefs.
- Strengthening applications for British certification from the BFI
- Identifying and calculating UK qualifying expenditure
- Preparing successful submissions to HMRC
For further information please contact Robb Puttock or your regular HaysMac contact.
