26 January 2023
Tax Reliefs including R&D
The UK audio visual industry is a vital part of the country's economy, generating revenues worth £19bn in 2021. According to a House of Lords report, that’s more than the aerospace, life sciences and automotive industries combined, with creative arts delivering “higher levels of innovation than many other areas of the economy.”
Among the various support mechanisms available to businesses in the sector, Creative Sector Tax Reliefs (CSTR) play a key role in helping companies fund new projects, shaping the commercial environment and industry outlook. These reliefs make a big difference – in the year ending March 2022, a total of £1.05 billion was paid out across all the CSTR. Recently, the government has been consulting replacing the five CSTR reliefs below with a new, audio visual tax relief:
- Film tax relief (FTR),
- Animation tax relief (ATR),
- High-end TV tax relief (HETV tax relief),
- Children’s TV tax relief (CTR)
- Video games tax relief (VGTR).
As the government looks to consolidate and simplify these reliefs, it's important for businesses to stay informed about the changes that may affect them. Matt Appleton explains what’s going on and what businesses need to know.
The role of audio visual tax reliefs
Current reliefs aim to help companies manage the costs of a wide variety of productions, applying to everything from blockbuster movies to small studio video indie games.
However, any changes will inevitably have an impact on budgeting and planning.
What changes are happening and why do they matter?
The government is currently consulting on several areas aspects of the future audio visual relief. This includes:,
- Consolidation: Simplifying the reliefs through merging these reliefs into a single scheme. Currently, these schemes are all based on similar legislation but there are differences, meaning any attempt to standardise will involve changes, which could impact on the level of any benefit available.
- Income credit: the new relief may be given by way of income credit, which may enable this to be shown “above the line” in accounts, thereby increasing the Profit Before Tax figure, which some companies would welcome. However, no guarantees have been made as to the quantum of any benefit (and as this credit is likely to be taxable, a sufficient increase would be needed to ensure the level of net benefit does not fall).
- Focus on UK spend: Specifically, the consultation references whether European spend should be allowed. This could be significant, for example European spend is currently eligible for VGTR and any move to remove such spend could see the value of such claims fall significantly.
- Subcontract: specific to VGTR, subcontract costs can currently be included in any claim but such spend is capped at £1m per game. This cap is being reviewed and it would be a welcome change if this were to be scrapped altogether (or at least increased, as this cap has not changed since originally introduced).
- Slot length: Consideration as to whether this should be changed or removed for HETV productions. Given there is also an average cost per hour barrier, this additional requirement is arguably not required.
- Documentaries: consideration as to whether a definition should be introduced for documentaries. In theory, this may add some certainty but will depend on how drafted. Equally, there may be winners and losers with any changes as to how HMRC view certain productions.
The above list is by no means exhaustive and we may even see further potential changes as a result of the consultation.
These changes, when implemented, could significantly affect the amount of cash benefit for some of these industries, meaning that the current consultation phase is crucial.
What happens next
It is important to note that these changes are still under consultation and nothing has been confirmed as yet. However, we recommend that businesses take the possibility of changes into account when considering future budgeting and fundraising requirements.
The consultation period is currently open until February 9th, 2023, and we will be keeping a close eye on the developments. The Treasury has indicated that these new reliefs are likely to be implemented in the Spring of 2024.
If you’d like to discuss your business’s tax position, get in touch.