Reform to audio-visual (video games, film and TV) tax reliefs

Andrew McMillan

Andrew McMillan

Tax Partner & Head of Innovation Taxes

The House of Lords Communications Committee published a report recently stating that the Creative Industries should sit at the heart of the UK's economic growth plans.   

From a video games only perspective, the UK games industry is an economic powerhouse, generating over £5bn in gross value to the UK economy, driving inward investment, and delivering export value through strong international sales. With the likes of France, Germany and Ireland now offering more generous tax incentives to video game development companies, the UK Government had come under pressure to reform the existing Video Games Tax Relief to mitigate the risk of weakening one of the pillars of the modern UK economy.  

The Audio-Visual Tax Reliefs consultation, which was launched at Autumn Budget 2022, covered the five audio-visual tax reliefs: Film Tax Relief, High-End Television Tax Relief, Animation Tax Relief, Children’s TV Tax Relief and Video Games Tax Relief. The output of the consultation and associated policy decisions were published as part of the Spring Budget 2023, with the draft legislation subsequently released in July.

On the mechanics of the relief calculations, the changes announced will see all five audio-visual tax reliefs move to a tax credit calculation mechanism similar to that of the existing Research and Development Expenditure Credit. This reform will change the way that relief is calculated, with the expenditure credits calculated directly by reference to the qualifying expenditure incurred, rather than resulting in an adjustment to the claimant company’s taxable profits. In addition, new headline rates of relief have been announced which, on the face of it, look substantially more generous than the existing reliefs. However, the devil is in the detail, with the published documents making clear that qualifying expenditure relating to each of the audio-visual tax reliefs will be capped at 80%.

Using video games development as an example, £100k of qualifying spend will result in a net rate of relief of approximately 20.4%, marginally more than the existing Video Games Tax Relief. In addition to the changes to the mechanics of the relief calculation and the headline rates, a number of other notable changes were announced, including a potential restriction related to overseas games development costs incurred.

The new expenditure credit mechanism will be phased in with companies able to claim under this from accounting periods starting on or after 1 January 2024. Any film, TV or video games developments that have begun, but not been concluded by 1 April 2025, may continue to claim relief under the current system until 31 March 2027. With regards to any new productions or games for which work commences after 1 April 2025, relief must be claimed under the new expenditure credit system.  

If you would like to discuss this further, please don't hesitate to get in touch with myself. a member of our Innovation Taxes team, or your usual Johnston Carmichael adviser.

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