A spotlight on innovation reliefs for the media industry

18 June 2024

The UK is home to a thriving media industry. Our survey of 300 business leaders, including agencies, television, gaming, audio and publishers, explored attitudes towards government support with a focus on innovation tax reliefs.

The government-backed innovation tax reliefs (creative tax reliefs, patent box, and research and development reliefs (R&D) can provide UK businesses with significant cash savings. The schemes can also help unlock and provide funding for further innovative activities. However, the frequent changes to the various regimes over the last few years have created an uncertain environment meaning businesses are less comfortable making long-term investment decisions. 

The media industry has also had to adapt to changing consumer behaviours with a move away from ‘traditional’ media to a focus on digital media. Streaming, gaming and meaningful digital interactions are driving some of these significant changes, and this shift will lead to a greater level of innovation and investment in new developments. 

But are media businesses benefitting from the current regime?

UK government supportive of media and creative industries, but more can be done

The government has been widely outspoken in championing the UK media industry, aiming to boost R&D investment to 2.4% of the UK's GDP by 2027.

Our survey found that 19% strongly agreed with the statement that ‘the UK government supports the media and creative industries’ compared to 4% who strongly disagreed. Our survey also highlighted that 41% somewhat agreed, and 30% had no opinion.

As of April 2024, the two separate RDEC and SME tax credit schemes were merged. This presented an opportunity to simplify the regime. However, the inclusion of the 'intensive regime', although welcome for many startups, means that the tax credit landscape is still complex. The current rate of benefit within the new merged regime of 15% leaves the UK regime highly uncompetitive when compared to our nearest neighbours France and Ireland, both of which offer a 30% rate.

Graph asking whether respondents agree or disagree that the UK government supports the media and creative industries. Most popular answer is 'somewhat agree' followed by 'neither agree not disagree'.

 

'The UK has a world leading media industry, but it is imperative that our tax environment works for those companies, rather than against. The reform taking place to the UK creative sector reliefs are broadly positive, but more could be done to ensure that the reliefs are targeted in the right areas and are simple for claimants to both understand and claim.'

Graham Steele, Innovation Reliefs

Creative reliefs take centre stage

It was encouraging to see that 95% of our survey respondents had submitted an innovation relief claim. However, with only 46% of business leaders answering yes to creative reliefs and 40% to R&D, it raises the question of whether businesses are missing out on some of the money that could be available to them. 

Creative sector reliefs target specific sectors, such as film, TV and video games. While well understood by larger companies who may have been making claims for several years, we often find that there is still a lack of understanding of the benefits these reliefs can provide. These credits often form a critical part of any production budget and have been instrumental in helping to nurture and grow these sectors within the UK.

Recent changes to these tax credits have also shown that the treasury is keen to ensure these reliefs continue to operate as intended. This helps demonstrate that the UK is serious about supporting these sectors and supports inwards investment from those overseas.

It’s also worth noting that additional changes specifically targeting animations, independent films and visual effects also demonstrate that the government will look to very specific areas where there is a perceived need to compete internationally.

For R&D, some businesses may also be unaware if they undertake qualifying R&D activity, or some may feel it is too difficult to make a successful claim. This reticence to claim may be indicative of the new, more hostile, environment that has been created by HMRC. Many would argue that this is justified given the abuses of the regime. However, deterring potentially eligible companies from claiming should never be seen as a positive outcome.

For media businesses, capitalising on these incentives should be a key part of a broader tax strategy. 

Graph asking question: "Claim for innovation reliefs in last 12 months". Answers from most popular to least: Creative sector, R&D, patent box, none of the above.

Increased scrutiny from HMRC proving costly

Our survey indicated that R&D claims were the second most common claim made by our 300 business leaders. This is an area of particular interest due to increased scrutiny from HMRC. 

A theme emerged in our results, with the increasing proportion of R&D claims being challenged by HMRC. 33% of respondents had their claims declined. This result is higher than HMRC’s quoted levels of one in five claims being selected for enquiry. A further 33% had a claim originally approved, but then retrospectively challenged by HMRC, resulting in repayment. 

With HMRC taking a much tougher approach to R&D claim enquiries and increased scrutiny for creative sector claims, this means claimants need to ensure their claims are well considered and well prepared. Seeking support from a reputable adviser has never been more important to ensure claims can be relied upon as a future inflow of funds to support development plans. 

Graph asking: "Thinking about your RD claims in the last 12 months". Replies mentioned in text above.

R&D a key area for media investment 

Our survey highlighted that 32% out of our 300 respondents intended to invest in R&D. Although this remains a key area, our survey from last year offers an interesting comparison. In 2023 we surveyed 200 media and technology business leaders and 47% cited R&D as their number one investment focus. 

With the R&D claim regime changes introduced, the increased complexity and in number of claims not approved, businesses are choosing to focus their attention on alternative areas to unlock valuable funding to fuel growth. 

Will the UK remain a key place for media businesses to set up and thrive? 

The changing R&D claims landscape and ongoing changes to creative sector tax incentives could cause the UK to be viewed as a less attractive home for media businesses. 

In an increasingly competitive international landscape, where many governments are heavily supporting creative industries, the UK must ensure it creates an attractive set of reliefs in order to continue to both attract and retain leading media companies. 

However, the message loud and clear from our survey results is that business leaders are optimistic but concerned about their longer term prospects in the UK.

Graph asking: "How do you feel about the future of your business within these timeframes?" Timeframes and answers mentioned in the text above.

 

'Increasing complexity in the application process for R&D and other creative tax reliefs may be holding the UK media industry back from competing internationally. We would urge the government to consider simplifying the application process, and raising awareness of what’s available to businesses, to encourage more innovation in the media industry.

The reduced credit rate being offered by the UK under the new merged R&D tax incentive regime is also set to reduce UK PLC’s competitiveness with other countries, particularly against the backdrop of near neighbours such as Ireland, making their regimes even more beneficial at 30% vs 15%.'

Constantine Costas, Innovation Reliefs

Media industry outlook 2024

Explore results from our survey with 300 media industry business leaders focusing on workforce, sustainability, innovation reliefs, funding and exit planning.