As part of the Spring Budget 2023, Chancellor of the Exchequer, Jeremy Hunt, unveiled several reforms to the tax relief available to companies working within the creative industries.

After the economic turmoil and U-turns of the few months following Kwasi Kwarteng’s disastrous budget, stability appears to have returned to the UK guided by Jeremy Hunt’s ‘boring’ budget. In an attempt to drive growth and encourage enterprise within the UK economy, the Chancellor announced several reforms to the tax reliefs available to companies working within the creative industries.

Background

A House of Lords report called ‘At risk: our creative future’ (the Report) painted a bleak picture to the tax landscape for the creative industries. The Report acknowledged that the UK’s tax policy did support the creative industries at one stage, but as it had not been updated, it was falling behind the rest of the world.

The Report commented on the UK’s eight sector-specific creative industry tax reliefs. Anecdotal evidence heard suggests they are having a real impact on innovation and output. For example, the video games tax relief supported £860m in spending in 2019 (up 23% from 2017) and is worth up to 25% of the core production costs of a game.

However, other countries copied the UK’s policies and applied better rates. This has directly led to companies moving employees, like Brown Bag, who closed their Manchester studio and moved staff to Dublin and Toronto.

The Report concluded that the UK’s tax reliefs need an overhaul to not lose out to the rest of the world. The Chancellor obliged and announced a refinement of two key areas, although the overall increase in the relief available is small in some instances.

Audio-Visual Reliefs

The Chancellor confirmed that the policy set out in the summary of responses to the Audio-visual Tax Reliefs Consultation will form the basis of the overhauled reliefs.

For accounting periods ending on or after 1 January 2024, film, TV and video games tax reliefs, which currently take the form of additional deductions, will become expenditure credits under two models: the Audio-visual Expenditure Credit (AVEC) and the Video Games Expenditure Credit (VGEC). The eligibility criteria will remain largely unchanged and both tax credits will require a minimum of 10% of the expenditure to be on goods or services used or consumed in the UK. There will also be an 80% cap on qualifying expenditure.

The new AVEC will provide for a credit rate of 39% for animation and children’s TV and 34% for film and high-end TV, with the expenditure threshold for high-end TV remaining at £1m per hour. Tax relief for video games will take the form of the VGEC, which will have a credit rate of 34%.

Films, TV or video games that have not concluded principal photography or, in the case of video games, development by 1 April 2025 may continue to claim in respect of EEA expenditure under the schemes until April 2027.

Creative Reliefs

The government plans to extend the temporary higher headline rates of Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibition Tax Relief (MGETR) for an additional two years. The headline rates of relief for TTR and MGETR will remain at 45% and 50% for non-touring and touring productions respectively, and at 50% for OTR. From April 2025, the non-rates for TTR and MGETR will go down to 30% and 35% and will return to 20% and 25% one year later. The headline rates of relief for OTR will reduce to 35% from April 2025 and will return to 25% from April 2026. In line the changes to audio-visual reliefs, qualifying expenditure will be changed to expenditure on goods and services that are used or consumed in the UK. However, productions that have not concluded by 1 April 2024 may continue to claim EEA expenditure until 31 March 2025.

Next Steps

Legislation for these proposals will be introduced in the Summer and included in a future finance bill.