A Call of Duty – consultation on modernising the audio-visual tax credits

There are currently five audio-visual reliefs covering films, high-end TV, animations, children’s TV and video games production. Currently, approximately £1bn of annual support is provided each year, which has been very successful in nurturing and supporting a thriving audio-visual sector in the UK. However, the UK competes on a global field to attract talent and investment to the sector and many other countries have seen the value of these industries and have introduced similar incentives. The UK regime has not changed substantially since originally implemented and the government has recognised that there is now a need for modernisation.

Bringing all five reliefs under one will help to simplify the reliefs and increase understanding within the sector. We expect to see the largest changes for video games where legislation has historically been shaped by EU state aid rules so we wouldn’t be surprised to see wholesale changes to the subcontractor limit of £1m and an alignment of the relief with other audio-visual reliefs so that it only applies to expenditure used and consumed within the UK (rather than the European Economic Area). For those game studios with workforces in Europe this may have a real impact on the value of the relief.

With only one regime for all audio-visual productions the qualifying criteria for productions will need to be revisited. We also expect the government to take the opportunity to tighten up some areas where boundaries have been pushed in order to ensure that the reliefs continue to operate as intended.

A proposal to replace the existing relief mechanism with an expenditure credit system will enable the benefit to be recognised ‘above the line’ within operating profit. As a result the proposed regime is expected to more closely resemble the UK’s existing large company research and development expenditure credits regime. Confirmation is also expected that these reliefs will not be impacted by the global minimum effective tax rate rules which are due to be introduced in the UK for large groups with accounting periods beginning on or after 31 December 2023. Whilst neither of these changes will come at any cost to the exchequer, they will be a very welcome change to many in the sector, encouraging investment to the UK and allowing for longer-term decisions to be made.

We welcome the opportunity to help shape the future of these reliefs but with such a wholesale change all stakeholders should ensure that there are no adverse implications from any proposed changes. Whilst at this stage this is only a consultation, we will be engaging with those in the sector to help ensure that the reliefs continue to operate as intended.