Creative industry tax reliefs are a group of corporation tax reliefs that apply to
companies undertaking film, television, animation or video games production.
The reliefs work in a similar manner, with companies which are eligible being able to claim enhanced expenditure deductions and the possibility of a repayable tax credit where the company makes a loss. As part of the conditions of qualifying for the relief the film, television programme, animation or video game must pass the ‘cultural test’ and obtain certification that the production is British from the British Film Institute.
Film tax relief
- Only film production companies which are responsible for pre-production, principle photography, post-production and delivery of the completed film can qualify.
- The film must be intended for theatrical release at a paying public commercial cinema, and a significant part of the intended earnings from the film are expected to be obtained from this.
- The film production company needs to be chargeable to UK corporation tax.
- At least 25% of the total production costs must relate to UK activities, although it has been announced that this threshold is expected to decrease to 10%.
The tax relief works by allowing the company an additional deduction of 80% (100% for limited budget films) of the lower of:
- UK core expenditure; or
- 80% of total core expenditure.
Core expenditures are the costs of pre-production, principal photography and post-production, but exclude marketing, distribution and financing costs. If the additional deduction produces a loss, the film production company can surrender this for a film tax credit. The amount of loss that can be surrendered cannot exceed the amount of core expenditure for the period. The repayable credit is 20% of the amount surrendered (25% if the film is a limited budget film with total core expenditure of £20m or less).
High-end television tax relief
This relief was effective as of 1 April 2013;
- 25% of expenditure must be UK expenditure, and there must be the intention for the programme to be broadcast on public television.
- The programme length must be greater than 30 minutes and the average core expenditure must be at least £1m per hour slot. The definition of core expenditure is the same as for film tax relief – being production expenditure on preproduction, principal photography and post-production.
- The relief applies to television programmes, however, the definition of television includes the internet.
- The programme must be a drama, documentary or comedy and the relief specifically excludes advertisement or promotional programmes, current affairs, news and discussion programmes, quizzes, variety or chat shows, competition programmes, live events and training programmes.
- The relief is available for non-UK companies which are within the charge to UK corporation tax.
The additional tax deduction is calculated on the qualifying expenditure, being the lower of:
- UK core expenditure; or
- 80% of total core expenditure.
The additional deduction is capped at 80% of production expenditure. If the company is loss making, this can be surrendered to HMRC for a repayable tax credit of 25% of the loss surrendered. The amount of the loss that can be surrendered is capped at the amount of qualifying expenditure in a period as per above.
Tax relief for animation productions
- In order for a programme to fall within this relief it can either be a programme that is an animation, or a drama or documentary that contains at least 51% animation by reference to core expenditure.
This tax relief works in the same way as the high-end television tax relief; however the slot length requirement of more than 30 minutes and the average core spend requirement of £1m per hour do not apply to animations.
Video games tax relief
This has been announced, but is still subject to approval by the European Commission.
- To qualify for this relief a company must be a UK registered company which is responsible for designing, producing and testing the video game.
- The video game must pass the culturally British test based on the points system set out by HMRC. Points are awarded for factors including; percentage of the game set in the UK or EEA, UK or EEA characters, British story or story relating to EEA state, original dialogue recorded in English or a recognised national language or lead programmer, designer, composer or script writer being UK or EEA resident.
- The definition of video games excludes gambling software or software whose purpose is advertising.
- Core expenditure for this relief is expenditure on designing, producing and developing the video game. At least 25% of the core expenditure must be UK expenditure (this is expenditure on goods and services that are used or consumed in the UK).
The relief applies to accounting periods beginning on or after 1 April 2013. A company which qualifies will be entitled to an additional deduction calculated as 80% of the lower of:
- qualifying UK expenditure; or
- 80% of total qualifying expenditure.
Where the company makes a loss, a surrenderable loss may arise as being the lower of the loss for the period and the qualifying expenditure for the period. The company can surrender all or part of this for a repayable tax credit of 25% of the surrendered loss.
Tax relief for theatre productions
A new tax relief was announced in March 2014 relating to theatre, ballet, dance and opera productions.
- Under current proposals both publically funded and commercial productions will be eligible.
- Further details of all the qualifying criteria are still to be announced.
Whilst the exact details of the relief are still being confirmed, two rates of relief have been announced; 25% for touring productions and 20% for all others. The applicable rate is expected to apply to 80% of a production’s eligible capital expenditure. Eligible capital expenditure will be all the costs required to create a show before it opens, excluding marketing, advertising, contingency and running costs.
The tax relief will work to reduce the amount of corporation tax payable and tax credits may be available.