Administrative changes to the creative industry tax reliefs
Updated 22 November 2023
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Who is likely to be affected
Companies claiming tax relief for films, high-end TV, animated TV, children’s TV, video games, theatrical productions, orchestral concerts and museum and gallery exhibitions.
General description of the measure
Companies claiming creative tax reliefs will be required to complete and submit an online information form. This will include claims made for the new expenditure credits: the Audio-Visual Expenditure Credit (AVEC) and the Video Games Expenditure Credit (VGEC). It also includes the cultural tax reliefs: Theatre Tax Relief (TTR), Orchestra Tax Relief (OTR) and Museums and Galleries Exhibition Tax Relief (MGETR).
There will also be some further changes introduced to the above reliefs to correct anomalies and prevent abuse.
Policy objective
The introduction of the information form and the further changes will be implemented alongside the introduction of the new expenditure credit regimes. It is expected that these changes will streamline the process of making a claim and assist companies in transitioning to the new regimes. The completion and submission of the online information form will make it easier to tackle abuse and will reduce the administrative burden on HMRC, allowing claims to be processed faster.
The change from European to UK expenditure will ensure that the cultural reliefs meet our international obligations.
Background to the measure
A consultation document entitled ‘Audio-visual tax reliefs: consultation’ was published in November 2022 at Autumn Budget. The document covered proposals to modernise and simplify the audio-visual creative tax reliefs which include Film Tax Relief (FTR), High-End TV (HETV) Tax Relief, Animation Tax Relief (ATR), Children’s TV Tax Relief (CTR) and Video Games Tax Relief (VGTR), as well as overhaul how tax credit is calculated. The consultation sought views to simplify and modernise the claim for reliefs, boost growth in the sectors and ensure the reliefs remain sustainable. The consultation closed on 9 February 2023.
A response document to the consultation was published on 15 March 2023 at Spring Budget. It was announced that the existing audio-visual reliefs would be replaced by new expenditure credit regimes. It is important that the new regimes are safeguarded from abuse, and so the government is also taking this opportunity to correct anomalies and ensure that the credits remain sustainable.
Draft legislation was published on 18 July 2023. The consultation on the draft legislation closed on 12 September 2023. This tax information and impact note has been amended following the draft legislation consultation.
Detailed proposal
Operative date
For AVEC and VGEC, this measure will take effect from 1 January 2024 to align with the introduction of the new regimes.
The changes in relation to the cultural reliefs, including mandatory use of the of the online information form, will come into effect from 1 April 2024.
Current law
The current law is contained in Parts 15,15A, 15B, 15C, 15D and 15E of the Corporation Tax Act 2009 (CTA 2009).
Paragraphs 83S to 83W of Schedule 18 to Finance Act 1998 set out the administrative provisions for all the creative reliefs.
Proposed revisions
All references are to the Corporation Tax Act 2009 (CTA 2009) unless otherwise stated.
Mandating the information form
A new information form is being introduced to improve the provision of additional information, which will become mandatory for all the creatives reliefs and credits: AVEC, VGEC, FTR, HETV, ATR, CTR, VGTR, TTR, OTR and MGETR.
Measures to address anomalies and unforeseen consequences
Paragraph 83W(1) of Schedule 18 to Finance Act 1998 (time limit for claim) will be amended to define the time limit for making a claim.
Paragraph 52 of Schedule 18 to Finance Act 1998 will be amended so that the restrictions on the making of a discovery assessment do not apply in the case of overpaid tax credits for all creatives reliefs.
Sections 1217GB,1217RB and 1218ZCC will be amended so that ‘European Expenditure’ will be replaced by ‘UK Expenditure’. The transitional arrangements will allow companies to continue using the old rule until 31 March 2025 in relation to productions that have begun the production phase before 1 April 2024. VGEC will differ from VGTR in that only UK expenditure will ever be eligible. A time limit will be introduced in relation to terminal loss claims for AVEC, VGEC and the cultural reliefs.
A rule will be introduced to restrict credit payments to companies that are in administration or liquidation. This will be introduced to AVEC, VGEC, and the cultural reliefs.
Connected persons rule
The connected party rule published in the draft legislation on 18 July 2023 now stipulates that the cost of goods or services provided between connected parties must be at an arm’s length price. This will be introduced to the AVEC, VGEC, and the cultural reliefs.
Companies will be required to disclose connected party transactions.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | -15 | -40 | -45 | -50 | Empty |
These figures are set out in Table 4.1 of Spring Budget 2023 as ‘Creative reliefs: reform of audio-visual tax reliefs into expenditure credits with increase in rates’. These figures incorporate the Exchequer impact of ‘Administrative changes to the creative industry tax reliefs’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
These measures have no impact on individuals, as they only affect businesses.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
These measures are expected to have a negligible impact on fewer than 3,000 businesses claiming the creative tax reliefs. One-off costs could include familiarisation with the changes and adapting to a new system. Continuing costs for businesses will include providing HMRC with more information. There is not expected to be any further one-off or continuing costs.
Customer experience is expected to improve as a digital service will help make the claiming process simpler and more efficient. There may be a slightly worsened customer experience in the short term whilst businesses are adapting to the change. This will be addressed by clear guidance and customer communications.
These measures are not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
No additional costs are anticipated as a result of these changes.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measures will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Kerry Pope on Telephone: 03000 585740 or email: [email protected], or Stephanie Martinez on Telephone: 03000 519492 or email: [email protected].