With new tax incentives for TV and film announced in the UK government budget this week, Robin Hilton, partner at media & tech law firm Sheridans, reveals how the new legislation will help the country to flex its production muscles.
There was not much about this week’s UK budget that had not already been leaked.
However, the announcement about the Audio-Visual Expenditure Credit (AVEC) as a successor to the existing film and TV tax reliefs, seems to have come as a surprise. There had been a consultation in late 2022, so the reforms were not entirely unexpected. Unlike earlier tax-based schemes in the UK, which became subject to abuse, the tax credits system has generally been successful but needed an update.
After an economically rocky few months, this is great news for the UK production sector. Huge infrastructure projects… together with the current affordability of sterling and the huge pool of UK talent, already make the UK appealing
The headline rates of 34% for films and high-end television (HETV), and 39% for animation and children’s TV, sound much higher than the 25% headline rate of the existing models. However, the basis for calculation is very different so the likely benefit is expected to be pretty similar, with an equivalent value of around 25.5% (slightly higher for animation and children’s, which particularly needed a boost).
Designed to address international tax framework reforms, the new reliefs will be predicated on expenditure credits and will consolidate the four reliefs into one AVEC system from 1 April 2024. Instead of using a company’s taxable profits, it will be calculated on qualifying expenditure. There will be transitional provisions for productions currently underway. For example, films and TV programmes that have not finished principal photography on 1 April 2025 can use the existing tax reliefs until 31 March 2027.
The new rules will preserve the minimum threshold of £1m ($1.2m) per slot length hour for HETV (including streaming). They will reduce the minimum slot length from 30 to 20 minutes per episode. High-end documentaries will also be expressly defined in the new legislation – and the video games tax relief scheme will be similarly overhauled.
After an economically rocky few months, this is great news for the UK production sector. Huge infrastructure projects including the construction of new studios at Pinewood and High Wycombe, together with the current affordability of sterling and the huge pool of UK talent, already make the UK appealing. But we also need to compete with tax incentives on offer in countries across the globe to win inward investment, especially with increasing pressure on budgets.
Our tax incentives must keep up. Freed from earlier EU level-playing-field rules, the UK can flex its muscles. Whilst we are still geographically close to Europe, teams from the US and overseas still consider the UK a gateway to Europe. It also helps to have the lingua franca of the English language.
Some have expressed concern that the UK will become a mere service hub for runaway productions, and that the real value (IP, rights, money) will be transferred elsewhere, particularly the US. However, the new AVEC support should be celebrated as it will enable UK plc to maintain its status in the international production realm while providing jobs, training, revenue and economic growth across the UK.
So, is it all plain sailing? Well, the hunt for production crews, on-screen talent and studio space will continue to be challenging and hard-fought. There are persistent mutterings about production activity overheating, of budgets getting inflated, and of talent demands becoming excessive. But markets will always fluctuate, and we should celebrate this latest government support for our film and television industry. With a thriving domestic sector, plus incoming productions from US studios and international co-producers, the UK can continue to attract and maintain diverse production activity.