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Following consultation, the enhanced relief for visual effects (VFX) costs under the audio-visual expenditure credit (AVEC) will go ahead as anticipated. An enhanced rate of 39% (compared to the normal rate of 34%) will apply to UK VFX costs. In addition, the 80% cap on qualifying costs under AVEC will be lifted for UK VFX costs. The enhanced rate and removal of the cap means that the after-tax effective rate of relief on these costs will increase from 20.4% to 29.25%.
The additional tax relief will only be available to companies when the production has received a final certificate from the British Film Institute (BFI) (except where the project is abandoned). This means claims can only be made for the completion period (or a subsequent period). For interim periods, the company will still be able to claim the normal 34% rate of AVEC, including on the VFX costs.
There will also be a small package of administrative changes affecting the AVEC and video games expenditure credits (VGEC). Specifically, the provision requiring companies to provide cultural certificates from the BFI will be amended so that it more closely reflects the equivalent provisions in the predecessor tax reliefs and is clearer to understand. The provision preventing deductions for amounts not paid within four months of the end of an accounting period will be amended, so that it works in the same way as the equivalent provisions in the predecessor tax reliefs and prevents a mismatch between the accountancy and tax treatment. Finally, a drafting error in the regulations procedure will be corrected.
Additional tax relief for VFX will be available to companies incurring UK VFX costs on films or high-end television productions that qualify for AVEC.
The administrative changes will apply to film, television and video game production companies claiming AVEC or VGEC.
The additional tax relief for VFX costs will apply to expenditure incurred from 1 January 2025. Companies will be able to claim the new credit from 1 April 2025.
The administrative changes will apply from the date of Royal Assent to Finance Bill 2024-25.
The visual effects sector and media industry more broadly will welcome the increase in the rate of relief and the removal of the 80% cap, ending uncertainty following the change in government. The earlier start date of 1 January 2025, rather than 1 April 2025 as expected, means that companies are less likely to delay VFX spend or take it outside the UK – providing a boost to the UK VFX industry following a slowdown due to the screenwriters’ and actors’ strikes. These measures indicate the government’s commitment to continued investment in the creative sector.