How to Structure Your Production to Maximise the UK AVEC: A Guide for Producers

A key factor in any film or television incentive claim – whether in the UK, the US or elsewhere – is ensuring that your production is structured correctly to maximise the value of the incentive available. The legal and operational structure of a production can directly affect whether costs qualify and how much support a production ultimately receives.

For productions seeking to access the UK Audiovisual Expenditure Credit (AVEC), proper structuring is particularly important. If a production is not set up correctly, it may fail to qualify for the incentive altogether. In many cases, once production is underway, it can be difficult – or even impossible – to retrofit a structure that meets the eligibility requirements.

This article explains the key structural requirements for the AVEC and the key considerations producers should keep in mind when structuring a production to maximise eligibility for the incentive.

What are the structural requirements to qualify for the AVEC?

The key structural requirement to qualify for the AVEC is that the UK company applying for the incentive must be the ‘production company’ for the production as a whole. Under the Corporation Tax Act 2009 (Chapter 4, Part 14a, Section 1179DP), the production company must:

a) Be responsible for—

(i) pre-production, principal photography and post-production of the film or programme, and 

(ii) delivery of the film or programme in completed form, 

(b) be actively engaged in production planning and decision-making during pre-production, principal photography and post-production, 

(c) directly negotiate, contract and pay for rights, goods and services in relation to the film or programme, and 

(d) be more directly engaged in the matters described in paragraphs (a) to (c), taken as a whole, than any other company that satisfies those paragraphs. 

This makes it seem that the UK production company must do everything relating to the production, but this is not the case. The UK production company can work with numerous other companies in different jurisdictions on the production as long as properly structured.

What does a properly structured production look like for AVEC eligibility?

In practical terms, the UK production company must be commissioned or instructed to produce the entire film or television programme. HMRC’s guidance (CREC010000 of the Creative Industries Expenditure Credit Manual) elaborates on this, but the key point to note is that it does not mean that the UK company must perform all aspects of production, but it must be responsible for them.

The UK company therefore must sit at the top of the production structure and engage any overseas production services companies to do the work in other locations on its behalf and at its direction, as per the below example.

As shown in the above example, the UK company can contract out part of the shoot and post-production to the US and Italian services companies (acquiring the rights that they produce in return for funding) and then sell the entire produced film or television programme to the commissioning entity, which may be a broadcaster, a streamer or another group company that then deals with external sales or a number of other options.

Does it matter which production activities take place in the UK for AVEC?

Fundamentally no, it does not matter which production activities take place in the UK. A production could shoot entirely in the UK and do all of post and VFX abroad or there could be no UK activity other than VFX.

It is not the nature of the activity that matters, but the level of activity in relation to the production overall. However, there are a couple of key requirements as for any UK incentive claim:

• A minimum of 10% of global relevant expenditure (i.e., qualifying spend) must be used or consumed in the UK;
• The production must pass the Cultural Test;
• The production must be intended for theatrical release or broadcast (as applicable for films and television programmes, respectively); and
• If applying for the high end television incentive, there must be a minimum spend of £1m per hour of slot length. 

For more information on the fundamentals of eligibility, see our recent AVEC guide for producers and our deep dive into the qualificaton of above-the-line (ATL)costs.

Can you change your production structure midway through production to qualify for AVEC?

Unfortunately, you cannot change your structure midway through production to qualify for the UK incentive. The key reason for this is that the UK company must be responsible for pre-production as part of its requirements.

If there was no contracting in place with a UK company until midway through production, it would be impossible for the UK company to have been responsible for pre-production – even if that activity was subcontracted elsewhere.

This is why early structuring of the production is vital for qualification and why early involvement of advisers (like Entertainment Partners!) and lawyers is so important to ensure that the requirements are being met.

Does the UK production company need to be established before production begins?

Yes – the UK company must have been incorporated before production starts, ideally before or early on during pre-production. If it is not incorporated before principal photography begins qualification will not be possible.

Company incorporation is relatively straightforward in the UK and can be done within three-to-five business days, so this is not a significant obstacle to ensuring qualification.

Are there specific legal contracting requirements for AVEC eligibility?

There are elements in the legal contracting of the commissioning  or production service agreement that are important to qualification under AVEC.

It is key that the UK entity is explicitly given the responsibilities discussed above so that there is contractual evidence of the UK company being the ‘production company’. It is equally important that the contracts with any service companies demonstrate that the UK company is instructing those entities on what to do and that they are providing services, rather than producing the entire film or television programme.

There are also elements within the commissioning agreement and contracts with service providers regarding the structure of funding that are important to ensuring that production can maximise the value of the AVEC. This can allow for protection of the value of the AVEC as well as give some potential tax upside for other UK companies within the same corporate group.

Ultimately, there’s a lot to consider when structuring your production to ensure that it qualifies for the AVEC. This is why it’s so important to speak to experienced advisers as early as possible so they can ensure you are meeting all of the requirements.

How Entertainment Partners can help

If you’d like to know more about how to structure your UK productions to qualify for the UK AVEC, contact Entertainment Partners today!

With vast experience in global and domestic tax incentives, our expert UK team can provide structuring advice to help you maximise your budget, as well as assist with your entire UK incentives needs – from Cultural Test applications and associated reports, film and TV incentives estimates to formal opinions to lenders, incentive claim submissions and deal close support.