Tax breaks for special effects work planned

Tax breaks for special effects work planned

Dec 1, 2023

The government is considering an increase in the level of audio-visual expenditure credit for visual effects spending from April 2025

It will work with industry on how best to design changes with the intention of implementing changes to the tax relief.

The main purpose of the call for evidence is to establish the actual size and value of the special effects industry in the UK and what percentage of this work is undertaken outside the country as a result of preferential tax treatments and other factors. At the moment, many productions are offshoring their special effects work to lower tax jurisdictions.

‘VFX work, which is not tied to where filming takes place, and is therefore the most ‘portable’ part of the budget, can easily be moved outside of the UK to a jurisdiction that will have additional tax relief available,’ the Treasury document stated.

‘Industry stakeholders cite this as a reason for reported trends of visual effects studios focusing their expansion overseas rather than in the UK.’

The Treasury wants to hear views from visual effects studios, businesses in the film and high-end TV sectors, accountancy bodies and accountants involved with creative sector clients.

The creative sector tax reliefs allow qualifying companies to increase their amount of deductible expenditure. This reduces the amount of corporation tax that the company needs to pay.

Under the current film and high-end TV tax scheme, relief is calculated on the basis of the production’s qualifying expenditure. This is capped at the lower of 80% of the total ‘core costs’ or 100% of core costs incurred in the UK.

Productions that are in train on 31 March 2025 will be able to continue to claim the existing film, high-end TV, animation, and children’s TV tax reliefs until 1 April 2027. These tax reliefs will be withdrawn at that date.

No changes will be made to existing film or high-end TV tax reliefs, which will end in April 2027.

As previously announced, animated feature films will be eligible for a 5% increase in relief to 39% under the audio-visual expenditure credit from 1 January 2024.

The government has also amended the definition of a documentary. The new definition is aligned with the guidance used by the British Film Institute and will apply to the audio-visual expenditure credit, which will be legislated for in the Autumn Finance Bill 2023.

The consultation will close at 5pm on 3 January 2024.