Do Above-the-Line (ATL) Talent Fees Qualify for UK Film and TV Tax Relief?

When applying for the UK Audio-visual Expenditure Credit (AVEC), producers and production companies often ask whether above-the-line (ATL) talent fees – including for actors, directors, producers and other senior creative talent – can be included as qualifying expenditure when calculating a UK incentive claim.

This article explains how ATL fees are treated under the UK incentive rules, including key considerations around eligibility, types of talent payment and how costs such as travel, per diems and back-end payments may be assessed.

Is there a cap on ATL fees under the UK incentive?

No – as long as all transactions are conducted at an arm’s length, there is no cap, ratio, limit or other restriction on the amount of ATL fees that can qualify for the UK incentive (see our previous article on the importance of arm’s length for connected party transactions).

This alone makes the UK very attractive compared with many jurisdictions which place cost or ratio restrictions on ATL talent.

Are ATL fees treated differently from other production costs under the UK incentive?

No – all costs incurred on a production, including ATL fees, are looked at through the UK’s ‘used or consumed’ lens. This is the determining factor in how costs are treated, regardless of whether they are ATL, below-the-line (BTL) or any other type of cost.

The key determining factor therefore is where the services provided by the individual are used or consumed within the production. The basis for this treatment differs depending on the ATL talent in question.

How are on-screen talent fees treated under the UK incentive?

The treatment of on-screen talent fees under the UK incentive is simple – the consumption of their services is determined by where they are performing.

If an actor or actress has a total of 30 performance days, 20 of which are in the UK, then two-thirds (20/30) of their fee will be eligible for the UK incentive.

Production companies typically use the Day out of Days (DooD) schedule to calculate the relevant proportion of fees to allocate to the UK for each individual cast member.

As covered in our recent guide to the UK AVEC for producers, qualification for the incentive is completely nationality, residency, supplier and currency blind. Therefore, Sydney Sweeney’s fees would be equally eligible for the incentive as Benedict Cumberbatch’s!

Are director fees eligible under the UK incentive?

HMRC guidance does not set out definitive guidance on how director fees should be treated under the UK incentive. However, any approach taken must be a ‘fair and reasonable’ apportionment.

A director’s physical location during shoot is not the only factor that affects the treatment of their fees under the UK incentive. Their input is also likely to be sought in post – they may be in the edit suite for some or all of edit and they may be involved in the VFX elements.

As such, the standard treatment is to ‘neutralise’ the director’s fee. Neutralising means stripping the fee out of the overall breakdown of UK versus non-UK treatments, calculating that percentage and then pro-rating the fee between UK and non-UK allocations.

This treatment reflects the idea that the director’s involvement can be considered pervasive to the production at all stages and should therefore be recognised equally across all jurisdictions.

However, were a director to be in the edit suite for the entirety of post and creatively involved in all aspects of production, it may be more appropriate to take a weekly breakdown of their cost by location and apportion the fee on that basis. If post was particularly long, weighting could be added to give a greater emphasis to shoot weeks to reflect the higher spend in that period overall compared with post.

In summary, director fees are typically neutralised, but they don’t have to be. As long as the treatment is fair and reasonable (and can be justified to HMRC in the event of an enquiry), a variety of approaches could be acceptable.

Do producer and executive producer fees qualify in the same way as director fees?

Producer fees under the UK incentive can often follow the treatment for director fees (i.e., they can often be treated as neutral costs and pro-rated across the overall production spend).

However, for producers, particularly executive producers, the key first step is to identify what the fee is being paid in relation to as not all producers are created equal.

For instance, a producer who is hired for a specific element (e.g., a shoot in Spain) would have their fee allocated entirely to non-UK costs as all of their services would be being used or consumed in Spain.

Another example would be an executive producer fee paid to a distributor or financier. Those fees would be considered non-core as they do not relate to production activities but rather to the distribution and financing of the production. They would therefore be unlikely to be considered qualifying spend (whether UK or non-UK).

If a producer is on the ground day to day and present throughout edit and post, it may be most fair and reasonable to allocate their time on a weekly weighted basis as set out above. However, for a high-level producer or executive producer who is on set one week, based in LA another week, and working on the production on an ad-hoc basis, their location is not necessarily determinant of the usage of their services. In that scenario, neutral treatment would likely be the most appropriate.

Are travel, per diems, entertainment and accommodation costs eligible under the UK incentive?

For additional costs over and above the services fee – such as travel, per diems, entertainment and accommodation costs – the fact of them being paid to or for ATL talent does not impact their treatment under the UK incentive; all costs are treated based on the underlying rules irrespective of who they are for.

Travel costs qualify based on whether work is being performed at destination – so flying an actor to the UK and home to LA for acting work performed solely in the UK would be 100% UK qualifying as no work is performed in LA. However, the same trip during shoot for a producer who continues to work on the production on their return to LA would only be 50% qualifying as the return leg is travelling for LA-based work and is therefore consumed in LA.

Per diems are simply based on the person’s location when they are paid and therefore would be UK qualifying if the person is in the UK but non-UK if they are overseas. The same treatment applies to accommodation costs, which are UK qualifying if for UK accommodation.

Entertainment costs are always non-qualifying for UK incentive purposes no matter where they are used or consumed.

Can back-end payments qualify for UK incentive?

Yes – back-end payments (e.g., box office bonuses, guild residuals, participations, award nomination bonuses or deferred fees) can qualify for the UK incentive.

However, it is vital that the production is correctly structured upfront.  In such cases, back-end payments are treated as additional ‘contingent compensation’ for provided services and are therefore eligible for the incentive once they have been paid out to the relevant third party.

The eligibility is determined by the underlying hard cost eligibility. Therefore, if 60% of an actor’s fee and 25% of a producer’s fee on a given production was eligible, 60% of the actor’s back end would qualify but only 25% of the producer’s.

How EP can help productions navigate UK incentive eligibility

If you’d like to know more about whether your production costs qualify under the UK AVEC, contact Entertainment Partners today!

With vast experience in global and domestic tax incentives, our expert UK team can help you to access the UK incentive and can assist with structuring advice, Cultural Test applications and associated reports, film and TV incentives estimates, formal opinions to lenders, incentive claim submissions and deal close support.