HMRC have published the summary of responses for their 'Consultation on additional tax relief for visual effects costs'. The consultation outlined the scope of visual effects and how the additional tax relief will work.
At the Spring Budget 2024, it was announced that from 1 April 2025, Film and high-end TV programmes will be able to claim an enhanced Audio-Visual Expenditure Credit (AVEC) at a rate of 39% on their UK visual effects costs.
In March 2024 HMRC opened a consultation looking at how the additional relief will work and what types of costs will be in its scope:
- The consultation ran from 27 March 2024 to 22 May 2024.
- A summary of responses was published in the Autumn Budget 2024.
The consultation received 19 responses.
Definition of visual effects
Respondents were concerned about:
- The absence of the ‘creation’ of footage from the definition and the requirement that the images being altered must be ‘filmed footage’, noting that it is common for some images to be crafted entirely digitally, with no filmed footage involved. In response, the Government will include images that are necessarily entirely created by computer technology in the definition.
- The exclusion of costs associated with generative AI: Respondents noted that it would be difficult to distinguish between generative and non-generative AI costs. In response, the Government will not legislate a rule to exclude AI costs from the scope of the additional tax relief.
Policy design
The visual effects work must be carried out in the UK for the associated costs of this work to qualify for the additional relief. However, the AVEC’s 80% cap will not apply to qualifying UK visual effects costs.
- Respondents suggested that films that claim the Independent Film Tax Credit (IFTC) should also be able to claim the additional tax relief. However, the Government has stated that films claiming IFTC will not be able to claim the additional relief, as IFTC is an enhanced relief with an AVEC rate of 53%.
Next steps
The additional tax relief for visual effects costs has been legislated in Finance Bill 2024-25
- The Government will legislate the following definition of visual effects: 'visual effects work consisting of the use of computer technology to create or alter images for the inclusion in the film or programme'.
- Eligible costs will include costs associated with the use of AI in the visual effects process and costs incurred in virtual production. Ineligible costs include those associated with special effects (which are created physically rather than using computer technology) and other costs incurred in virtual production, such as filming in front of an LED screen.
- The government will provide further guidance on the definition in due course.
Useful guides on this topic
Creative Industries: Audio-Visual Expenditure Credit (AVEC) & Video Games Expenditure Credit (VGEC)
Audio-Visual Expenditure Credit (AVEC) will replace Film Tax Relief (FTR), High-End TV Tax Relief (HETR), Animation Tax Relief (ATR), and Children’s TV Tax Relief (CTR). Video Games Expenditure Credit (VGEC) will replace Video Games Relief (VGTR).
Creative Industries Tax Reliefs: At a glance
What are Creative Industries Tax Reliefs? Which Creative Industries Tax Relief are you eligible for? When should relief be claimed under Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC)?
Creative Industries: Additional Information Form (AIF)
What are the additional information requirements? When should you complete the Additional Information Form (AIF)? What information is required?
Creative Industries: AVEC worked example
How to calculate the Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC)?
Creative Industries: AVEC worked example (with losses)
How to calculate the Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC)? How to determine the credit repayable to the company if it incurs losses?
Creative Industries: Film Tax Relief and Television Tax Relief
Film Tax Relief (FTR), High-End TV Tax Relief (HETR), Animation Tax Relief (ATR) and, Children’s TV Tax Relief (CTR) are part of the UK's suite of creative industry tax reliefs.
Creative Industries: Video Games Tax Reliefs (VGTR)
What is Video Games Tax Relief (VGTR)? Who can claim VGTR? When will VGTR cease?
