Audio Visual Expenditure Credit (AVEC)

• AVEC is available to a production company incorporated in the UK and subject to UK tax and is only available for qualifying British productions. This was the case with the UKTC too.
• It applies to the same notion of “core” (i.e. production and post-production, but not development, finance or distribution) expenditure used or consumed in the UK, up to a cap of 80% of the budget (as with the UKTC);
• For film and “High End TV”, AVEC provides for a gross credit, before tax, of 34%, but this is subject to mandatory corporation tax at 25%, giving a net credit after tax of 25.5% (marginally more than the UKTC of 25%).
• For animation (film or TV) and children’s TV, the gross credit, before mandatory tax, is 39%, giving a net credit after tax of 29.25% (more than the current UKTC of 25%).
• The definition of “High End TV” remains the same:
• £1m per 1 hour slot length.
• It continues to apply to drama, comedy and documentaries, and exclude news, sport, game shows and factual entertainment.
• The minimum slot length has been reduced from 30 minutes (UKTC) to 20 minutes (AVEC).
• A clamant can switch between film (intended for theatrical release) to High End TV, provided the other qualification requirements for High End TV are met.

There are some notable differences with AVEC from the UKTC, principally:

• Transactions with connected parties (owned or controlled by the same, or related, entities or people) have to be at “arm’s length” and are subject to scrutiny by HMRC; and
• the credit cannot be claimed if, at the time of application, the claimant company is in administration or liquidation.
• The Timing:
• AVEC can be claimed on core expenditure incurred on or after 1 January 2024;
• Only AVEC (and not UKTC) can be claimed for productions starting principal photography on or after 1 April 2025; and
• from 1 April 2027 only AVEC can be claimed – UKTC will cease entirely.

The New Independent Film Tax Credit (IFTC)

Most exciting of all is the announcement of the new Independent Film Tax Credit (IFTC) which gives a gross credit before tax of 53%, giving a net credit after tax of 39.75% on core expenditure (capped at 80% of the budget) for an ‘Independent film’.  Details are awaited, but to qualify for the IFTC the production must:

1. be a film (intended for theatrical release) and otherwise meet the requirements for AVEC;
2. be ‘independent’ – currently envisaged as being defined through having a production budget of up to £15m;
3. also meet one of the following requirements:

• have a UK writer; or
• have a UK director; or
• be certified as an official co-production.

The IFTC will be capable of being claimed on core expenditure incurred from 1 April 2024 on films starting principal photography after 1 April 2024, but will only be able to be claimed from 1 April 2025.