EP NowStoreAcademySupportCommunityProducts by Country
Blog Home

5 Things to Consider Before Transitioning to the UK’s New AVEC Regime

A comprehensive overview to help determine if you should use the UK’s new incentive regime to fund your next production.
January 16, 2024

Sam Collett

Sam Collett-5 Things to Consider Before Transitioning to the UK’s New AVEC Regime

With the introduction of the new audio-visual expenditure credit (AVEC), the UK production incentive regime has undergone the most significant change since the introduction of the current systems for film in 2007, and high-end television (HETV) in 2013 (see here for more information).

The AVEC became available to productions on January 1, 2024, but is mandatory only for productions whose principal photography commences on or after April 1, 2025. That means there’s a 15-month period where both regimes are available.

There are numerous factors productions should bear in mind before deciding which regime to access. Productions should also note that in its final legislation published in November 2023, the UK government addressed some of the previous areas of uncertainty and provided clarity on how the new regime works in practice.

What to think about

Connected party costs

One of the headline elements of the draft legislation published in July 2023 was the restriction on claiming an incentive on connected party costs, whereby any profit element would be explicitly excluded from qualifying for the new incentive.

This was flagged to the UK Treasury as an area of concern both from a practical standpoint (in terms of being able to identify profit elements on some complicated transactions) and because the stated aim of the incentives was for them to be as generous as the existing tax credit regime, which would not be the case if this restriction took effect.

In the final legislation, HMRC changed the wording around connected party transactions. They now qualify in full for the expenditure credit, as long as they are conducted at an ‘arm’s-length basis’. There is considerable precedent for what HMRC will consider ‘arms-length’ – if you have any questions on this subject, please get in touch.

One further element that has been clarified in the final legislation is that HMRC now requires all connected party transactions within a production to be disclosed in an accompanying disclosure form (details of the form are not yet available).

Identification of connected party costs both at a budgeting stage, and also from a production accounting perspective, are therefore an important element to consider. This will be an area that advisors and auditors will focus on for calculating incentive values and preparing claims, and may therefore require additional input from productions (and especially production accounting teams).

Increased rate

For any initial internal calculations being done on the incentive (e.g., within Movie Magic Budgeting), you will need to remember to update the credit rate to 25.5% from the current 25% level – or up to 29.25% for animation and children’s TV.

Changes to corporation tax rate

The new AVEC and video game expenditure credit (VGEC) regimes have an implicit potential to have a variable rate by virtue of the gross credit (34% and 39%, respectively) being subject to the main rate of corporation tax (25%) to create the new effective rates of 25.5% and 29.25%.

Based on the draft legislation, the potential for a change in the main rate of corporation tax (either up or down) to impact the value of the tax credit was again flagged to HMRC.

HMRC’s response was that it would be a policy decision for any government to make in terms of adjusting the rates of the incentive to neutralise the impact of changes to the main rate of corporation tax. The expectation was that this would happen given the stated intent to maintain the generosity of the incentive.

The final legislation includes an additional clause which states that the government may by regulation change the incentive rate to a different percentage. The inclusion of this additional clause further suggests that the rate would be likely to change, should the net value of the incentive be impacted by a change in the main rate of corporation tax.

Enhancement for animation and children’s TV

For both animation and children’s TV, the new AVEC brings with it a more marked increase in rate up to a 29.25% effective rate. Clearly, any budgeting for those shows will need to factor this in to an even greater extent than for standard films or HETV shows.

An important reminder here is that animated feature films can now qualify as an animation, rather than just animated TV shows. This would therefore give the same film a 14.7% greater tax credit if it qualified as an animation compared with a standard film.

Timing

As noted above, the new regime is available from January 1, 2024 and will be mandatory for productions that start principal photography on or after April 1, 2025.

For this transitional period, a cost benefit analysis might be required to assess which regime is beneficial on a production-by-production basis—for some it may be beneficial to move to the new regime, for others it may be better to stick to the old regime.

This could also be important from a timing perspective when determining the start of principal photography if there is a significant difference in the value of credit available to a production.

It is important to note that there is a fixed sunset date for the new regime of April 5, 2027, after which only the AVEC will be available.

What not to think about

Cultural Test

The introduction of the AVEC has not affected the Cultural Test, which determines whether a production qualifies as ‘culturally British’ and is therefore eligible for the incentive. All existing rules and interpretations and the qualification process remain the same.

However, productions should note that due to the number of applications, and the nature of the applications being received, the current turnaround time for both interim and final certificates from the British Film Institute (BFI) is 18-20 weeks—longer than it has been previously.

Thankfully, extra funding has been made available to the BFI (as announced in the government’s Autumn Statement 2023) to allow it to work to bring the turnaround time back down to previous levels.

Planning for this longer turnaround time for financial close and cash flowing of final tax credits is an important element that productions should discuss with their advisors.

HMRC Process

While the AVEC does represent a significant change to the administrative operation of the incentive versus the current tax credit system, it is not an entirely new process for HMRC.

The AVEC mechanism has been based on the existing Research and Development Expenditure Credit (RDEC) and is designed to operate in the same way from an HMRC perspective. As such, the transition between the reliefs should be relatively smooth from an HMRC administrative process and should not lead to any significant changes to the HMRC review process.

In the short term, while HMRC is administering two concurrent regimes in the creative sector, there may be a slight increase in turnaround times, but this is not expected to be severe.

Want to know more about the AVEC?

Ultimately, if you have any concerns about the details, reach out to Lloyd Gunton and the team at FLB Accountants (an Entertainment Partners company), who can answer any questions you have on the new system and the interaction of the reliefs.

As a UK-based accounting firm with expertise in media and entertainment accounting, tax and tax incentives, finance, and accounting, the FLB team can also provide film and TV tax credit incentive estimates and formal opinions to lenders, manage tax credit claim submissions, work with producers to advise on and finalise budgets and provide deal close support for both independent and multi-party financed projects.

Related Content

Four panelists discuss co-production-square

Unlocking the Myths and Benefits of Co-Production

2/15/2024
Learn the difference between an official co-production and PSA, and how to leverage these opportunities to...
Master Series Thumbnail Square UK Productions

UK Production: Sites, Services and Studios

10/20/2023
Learn about UK incentives, infrastructure and production innovation spanning from London to Wales,...
Expert Advice_Sam Collett

Spotlight: Sam Collett, UK Production Accounting and Incentives Expert

9/19/2023
Meet the Senior Partner at FLB Accountants, an Entertainment Partners company specializing in UK media and...
Master Series_UK Incentives Panel_Square

What's Changing in UK Production Incentives

9/15/2023
Learn about the recent changes to the UK Creative Sector Tax Credits and how they might impact your next...
EP Blog_SQUARE_UK cultural test

Understanding the UK Cultural Test

9/12/2023
Find out whether your film or TV show will pass the UK’s Cultural Test, a key step in qualifying for the...
EP_SQUARE_HMRC Answers

HMRC Answers Key Questions on New UK Audio-Visual Expenditure Credit

8/22/2023
UK Creative Sector Department weighs in on the interpretation of some of the new legislation and guidance...

What Expenditure Qualifies for UK Film Tax Relief?

6/21/2023
Find out what constitutes qualifying expenditure under the UK Film Tax Relief.
EP Newsroom-Thumbnail-PGGB

Million Youth Media Wins The Duke of Edinburgh Film & TV Inclusion Award 2024 at PGGB Talent Showcase

2/14/2024
The Duke of Edinburgh Film & TV Inclusion Award presented to Million Youth Media, an organisation offering...
Blue square with white letters and UK flag: Changes to UK Paternity Leave Regulations

Changes to UK Paternity Leave Regulations

1/19/2024
Effective March 8th, modified paternity leave to provide more flexibility for UK fathers.
Topic: Alerts
More

Production Incentives Update: December 2023

12/20/2023
Notable dates and modifications to production incentive programs in California, India and Spain.
Blue tile stating UK announces minimum wage updates

UK Government Announces Minimum Wage Updates

12/5/2023
National Living Wage and National Minimum Wage rates increase for 2024.
Camera man filming on a snowy mountain in the winter-sq

Production Incentives Update: November 2023

11/28/2023
Your guide to recent production incentive changes in Connecticut, Minnesota, New York and Japan.

Minnesota: Land of 10,000 Opportunities

11/17/2023
Learn about Minnesota's new incentive program, dynamic locations, strategies for boosting crew training...

Regional Success: Why Small UK Hubs Aren’t Afraid of Big Productions

11/7/2023
Learn about the stunning natural scenery, historic architecture and film-friendly incentive schemes that...

Production Incentives Update: October 2023

10/26/2023
Learn about recent legislation changes boosting tax incentives in Colorado, Florida, Virginia and ...

Entertainment Partners Makes Commitment to UK Production with Film & TV Partnership Programme

10/12/2023
Find out how EP is partnering with the leading UK training organisations to close the skills gap, increase...
Entertainment Partners Logo Thumbnail-square

NFTS and Entertainment Partners (EP) Establish Partnership to Support the Future of Film and Television Production

10/5/2023
By supporting the National Film and Television School through this new partnership, Entertainment Partners...
Newsroom-Advanced-Television-Logo-Thumbnail

NFTS, Entertainment Partners establish partnership

10/5/2023
EP the entertainment payroll and production technology company joins as a prominent new Patron of the...
British-Cinematographer-Logo-Thumbnail

NFTS and Entertainment Partners (EP) establish partnership

10/5/2023
The National Film and Television School (NFTS) announces a new partnership with Entertainment Partners...

Minnesota Becomes Land of 10,000 Opportunities with New Incentive Launch

9/29/2023
Minnesota introduces a new tax incentive program to renew the state’s status as a dynamic location for...
Georgia Incentives Panel_sq

GA Incentives Insider: Your Questions Answered

9/27/2023
Brian Shanaghan, Audits Manager at the Georgia Department of Revenue (GA DOR), addresses the industry's...
Film crew on location filming outdoors

Production Incentives Update: September 2023

9/27/2023
Insights on recent changes to production incentive programs in D.C., Kentucky, Montana, Ohio and Ontario.
UK Right to Work Penalties to Triple in 2024

UK Right to Work Penalties to Triple in 2024

9/26/2023
Find out how your production can prepare for the increased penalties for employing a worker who doesn't...
Topic: Legal
More
EP Blog_SQUARE_Spread of UK Production

Outside of London: How the UK Production Industry Spread Beyond the Capital

9/21/2023
Film and TV production outside of London (OOL) is now an integral part of the UK, with world-class media...
Topic: UK
More
Master Series Australia Offset Square Thumbnail

Discover All About Australia's Location Offset

8/30/2023
Australia's Location Offset rebate skyrocketed from 16.5% to 30%! Learn about the requirements and how...
Jane Corden, Managing Director, Australia and New Zealand

Spotlight: Jane Corden, Managing Director, Australia & New Zealand Operations

8/29/2023
Meet the Australian production accounting and tax incentives expert who is helping EP invest in the future...

Production Incentives Update: August 2023

8/25/2023
Recent changes to production incentive programs across the US and Thailand.
EP Blog_SQUARE_Sustainable UK Studios

The Producer’s Guide to Sustainable UK Studios

8/18/2023
Learn how studios across the UK are taking positive steps to reduce their environmental impact.
Topic: UK
More
Pre-employment Checks to Consider Before Contracting Crew on UK Productions

Pre-employment Checks to Consider Before Contracting Crew on UK Productions

8/18/2023
A comprehensive overview of the checks you may like to consider when crewing up on UK productions and what...
Topic: Legal
More

Production Incentives Update: July 2023

7/31/2023
Lights, Camera, Incentives! Exploring the recent changes to Film Incentive Programs across the world.
Master Series US Incentives 2023 Square Thumbnail

US Film Incentives Changing in 2023

7/27/2023
Learn about incentive changes in NY, NM, LA and more, and how Entertainment Partners can help your...
EP Blog_SQUARE_Changes to UK Tax Credit

Preparing for the Upcoming Changes to the UK Creative Sector Tax Credits

7/25/2023
Understanding the UK's Audio-Visual Expenditure Credit (AVEC), Video Games Expenditure Credit (VGEC), and...

What Does UK Government’s Creative Industries Sector Vision Mean for Film & TV?

7/21/2023
Find out what the UK government’s new Creative Industries Sector Vision means for film and TV...
EP Blog_SQUARE_UK Virtual Production Space

The Producer's Guide to Virtual Production Space in the UK

7/21/2023
A comprehensive overview of virtual production studios which are available to film and TV productions...
Topic: UK
More

Welsh Film & TV Industry Goes from Strength to Strength as Key Partners Pledge Support

6/30/2023
Bad Wolf’s Jane Tranter and other women working in Welsh film and TV recently attended a networking event...
SQUARE_Step up to Production

EP Partners with PGGB to Deliver Step Up to Production Accountant Programme

6/20/2023
Entertainment Partners and PGGB deliver online training programme for new and aspiring production...
Blog_SQUARE_NY Diversity Incentive

New York Takes Steps to Promote Diversity in Film, Television and Commercial Production

6/20/2023
New legislation in the empire state aims to require production companies to report diversity hiring data,...
EP legal and compliance: Proposed changes to IR35 for productions

Proposed Changes to IR35 Rules: What They Mean for Productions

6/16/2023
Proposed changes to the UK IR35 rules could end the double-tax headache that has plagued both production...
Topic: Legal
More

Hundreds Sign Up as Background Actors at Liverpool Registration Day

6/16/2023
Entertainment Partners holds open registration day to encourage aspiring film and TV background actors to...
MS_The Future of Background Casting_Square

The Future of Casting Technology

5/31/2023
Learn how the EP Casting Portal can help you streamline casting operations and simplify working with...

Payroll & Finances

PayrollResidualsSmartStartSmartTimeProduction PortalEP On LocationSmartAccountingEP LiveSmartPOCASHétPayPaymaster Rate GuideEP Residency

Manage Multiple Productions

AssetHubSmartHub

Additional Services

Academy
Subscribe now

Be an industry insider with EP's
newsletters and alerts

LegalPrivacy NoticeSecurity
© 2024 Entertainment Partners. All rights reserved.