Creative Tax Relief and R&D Reforms

Tax relief was a major topic of the Chancellor’s Budget this week, with its continued focus on helping the UK’s world-leading creative and technology industries to thrive in what has been a major success story.

The full detail of some of these Budget reforms won’t be published until 2023, but the announcements yesterday are very encouraging, with many of the headline tax rates due to be increased or maintained at their current levels.

The headline points are:

Increased rate of R&D relief

  • From 1 April 2023, the government will introduce an increased rate of relief for loss-making R&D intensive Small and Medium size Enterprises (SMEs). SME companies for which qualifying R&D expenditure constitutes at least 40% of total expenditure, will be able to claim a higher payable credit rate of 14.5% for qualifying R&D expenditure.

Film, TV and video games tax credit reforms

  • The government will continue to support the UK’s world-leading creative industries by reforming the audio-visual tax reliefs into refundable expenditure credits, with what appears to be a higher rate of relief than under the current system, but we should note that we do not have the full methodology of calculation yet. We are pleased that many of our firm’s recommendations on this topic appear to have been adopted, following our participation in the government’s recent consultation on this area.
  • The Audio-Visual Expenditure Credit will replace the current film and TV tax reliefs and the Video Games Expenditure Credit will cover the current video games tax relief.
  • Film and high-end TV will be eligible for a credit rate of 34%.
  • Animation and children’s television will be eligible for a higher rate of 39%.
  • The new Video Games Expenditure Credit will have a credit rate of 34%.
  • The expenditure threshold for high-end TV will remain at £1 million per hour.
  • The minimum slot length for high end TV will be reduced to 20 minutes, applied on an episode-by-episode basis.
  • The government will put a definition of a documentary into legislation. This will be based on the British Film Institute’s definition.
  • The new expenditure credits will be available for companies to claim for accounting periods ending on or after 1 January 2024. Productions that have claimed relief under the current system will be able to opt into the new regime.
  • The current tax reliefs will close to new productions from 1 April 2025. If film and TV productions have not concluded principal photography by 1 April 2025, or video games have not concluded development by this date, they may continue to claim relief under the current regime until 31 March 2027.
  • The previously announced restriction on some overseas expenditure will now come into effect from 1 April 2024, instead of 1 April 2023. This will allow the government to consider the interaction between this restriction and the design of a potential merged R&D relief.

Theatre, orchestra and museums and galleries tax reliefs extended

  • The temporary higher rates of theatre and museums and galleries exhibitions tax credit rates of 45% and 50% (for touring productions or exhibitions), will be extended
  • The intermediate rates will then be 30% and 35% (for touring productions or exhibitions) until 31 March 2026, and 20% and 25% respectively, from 1 April 2026.
  • Orchestra tax credits will remain at 50% until 31 March 2025 and will then reduce to 35% until 31 March 2026, and 25% from 1 April 2026.
  • The Museums and Galleries relief will expire after March 31 2026 and no expenditure will be eligible for relief after this date.
  • The definition of qualifying expenditure under the theatre tax relief, orchestra tax relief and museums and galleries exhibitions tax relief schemes will be amended to remove EEA expenditure from 1 April 2024.

The government anticipates that some 1200 companies will benefit from these extensions to theatre, orchestra and museums and galleries tax reliefs. Industry sentiment is that this reform is “game-changing” and will be a massive boost for these industries, which are still dealing with the financial impacts following COVID, along with the current cost of living crisis.

New productions, which may not have been green-lit, can be, thanks to the removal of uncertainty around the enhanced relief extension. There is also potential for further rationalisation of these reforms over the coming years and we would hope to see that these vital reliefs continue beyond April 2026.

The extent of the reforms for audio-visual tax relief won’t be apparent until the full details of the government’s draft policy are published in Summer 2023 and we will share further updates with you then.

For more information about Creative Industry Tax Relief or R&D reforms, please contact Jai Vora, Steve Wren, or Kieron Clement-Smith.


Jai Vora | Creative Division

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