Additional tax relief support for the UK’s visual effects sector

At the Autumn Budget, the Chancellor announced a package of additional tax relief support for the UK’s visual effects sector. Taken together, the announcement will help to ensure that UK VFX companies remain internationally competitive, help drive even more work to the UK, generate new jobs, and ultimately create more economic value for UK plc.

A 5% increase in Audio-Visual Expenditure Credit

After a long consultation process with the industry, the government has announced that UK visual effects costs in film and high-end television programmes will receive a 5% increase in Audio-Visual Expenditure Credit. This increases the rate to 39%, a net rate of 29.25%.

UK visual effects costs will also be exempt from the Audio-Visual Expenditure Credit’s 80% cap on qualifying expenditure.

These changes will take effect for expenditure from 1 January 2025.

Companies will be able to claim the additional tax relief from 1 April 2025.

How to qualify for the Audio-Visual Expenditure Credit VFX uplift

To qualify for the VFX uplift, film and high-end TV production will need to meet the existing eligibility criteria of the Audio-Visual Expenditure Credit.

The government will legislate the following definition of visual effects for the purpose of the additional tax relief: “visual effects is work consisting of the use of computer technology to create or alter images for the inclusion in the film or programme”.  

In addition:

• Companies will need to provide HMRC with evidence of the visual effects costs they wish to claim relief on and details of the VFX provider(s) that carried out the work. HMRC will publish further detailed guidance on this process in due course,
• Companies must submit a return for the production’s completion period. This is the accounting period when the film or programme is complete and the production has received a final certificate from the British Film Institute (BFI), or the period in which the production has been abandoned. If a company makes a claim for Audio-Visual Expenditure Credit (AVEC) for a pre-completion period (using an interim certificate from the BFI), they will receive the normal 34% rate of AVEC on their VFX costs, capped at 80%. When the company later successfully submits a claim for VFX relief in the completion period, they will receive the full amount of credit due in relation to any post 1 January 2025 VFX expenditure incurred in both the completion period and all pre-completion periods,
• Costs associated with the use of artificial intelligence (AI), including generative artificial intelligence (GenAI), in the visual effects process will be eligible for the additional tax relief.
• Visual effects costs incurred in virtual production will be eligible for the additional tax relief. Other costs incurred in virtual production, such as filming in front of an LED screen, will not be eligible. The government expects companies to apportion virtual production expenditure so that relief is only given on visual effects costs.

Exceptions

• Productions that claim the Independent Film Tax Credit (IFTC) are not eligible for the additional tax relief for visual effects. If they are eligible for both, then they must choose which one they want to claim.
• Productions that claim the enhanced 39% rate of AVEC for animated productions and for children’s TV productions will not also be able to claim the additional tax relief for visual effects. If they are eligible for both, then they must choose which one they want to claim.
• Costs associated with special effects (which are created physically rather than using computer technology) will not be eligible for the additional tax relief.

If you have any questions on your eligibility for claiming the VFX uplift, please speak to your usual Saffery contact or speak to Stephen Bristow.