UK Independent Film Tax Credit

On Wednesday 6 March 2024, the Chancellor of the Exchequer announced the introduction of the UK Independent Film Tax Credit (“IFTC”) in the Spring Budget.

The IFTC is specifically targeted at the UK’s independent film industry. Following the recent Culture, Media and Sport Committee which was set up to look at the challenges the sector faces, the Government seemingly recognises the value of investing in film-making and has sought to stimulate the production of independent films in the UK via this new regime.

What is IFTC?

IFTC will enable producers of eligible films to opt-in to claim an enhanced Audio-Visual Expenditure Credit (“AVEC”) on their qualifying expenditure at a gross rate of 53% (which, after deduction of corporation tax at current levels, means a net tax credit of 39.75%). The maximum amount of IFTC which can be paid out on a film is £6.36 million.

What is AVEC?

Since 1 January 2024, under the new AVEC regime, a production company can claim a payable tax credit on its qualifying expenditure at a gross rate of 34% for film and high-end TV programmes (or 25.5% after tax) and 39% (or 29.25% after tax) for children’s TV and animation projects, subject to a cap of 80% on qualifying expenditure. Additionally, it was announced at the Spring Budget that, for film and high-end TV: (i) the AVEC will be increased by 5% to 39% gross (or 29.25% after tax) for visual effects costs only; and (ii) the 80% cap will be removed for qualifying expenditure for visual effects costs, from 1 April 2025. There is due to be a consultation on the types of expenditure that will be deemed to be “visual effects costs” in the near future.

For more detailed guidance on the AVEC regime, please see our previous Law-Now here.

Conditions to qualify for IFTC?

For a film to qualify for IFTC, in addition to all the usual requirements of AVEC, it will need to:

1. be a film (i.e. IFTC is not available for television programmes) and have a theatrical release. It should be noted that the current HMRC policy note on IFTC says “have a theatrical release” rather than simply be “intended for theatrical release” which is the long established requirement under AVEC and the previous film tax relief;
2. have a production budget of up to £15 million, excluding marketing and distribution costs;
3. commence principal photography on or after 1 April 2024 (and only expenditure which was incurred on or after 1 April 2024 will be eligible as qualifying expenditure); and
4. meet the new British Film Institute (“BFI”) test for UK independent film which requires a film to:
   1. have a UK writer; or
   2. have a UK director; or
   3. be certified as an official UK co-production.

The BFI will be responsible for assessing whether the £15 million budget requirement is met. If a film’s budget, which was previously approved as being eligible for IFTC, subsequently exceeds £15 million, the production company will be entitled to elect to either continue to claim IFTC at 53% (up to the maximum of £6.36 million) or AVEC at the applicable rate on all of the film’s final qualifying expenditure. Consideration will need to be given by filmmakers of projects which are anticipated to have large back-end shares payable to cast and crew as that might tip the balance as to whether to claim IFTC, knowing there is a £6.36 million maximum threshold of credit per film, or whether to claim under AVEC for all the film’s qualifying expenditure, including the contingent compensation payable to cast and crew after release.

As the usual requirements for AVEC are still required to be met, a qualifying film will also need to;

1. be certified as culturally British by the BFI, applying the long established cultural test for film; 
2. be made by a “film production company” within the UK tax net;
3. have at least 10% of its core expenditure being used or consumed in the UK.

When will the changes take effect?

Films commencing principal photography from 1 April 2024 can opt-in for IFTC and will be able to submit claims from 1 April 2025 in respect of the previous year’s expenditure (once legislation has been passed).

As with AVEC, the claim will form part of the production company’s tax return. However, it will require the completion of an additional form for the applicable period which will need to be accompanied by the film’s BFI certificate.

We are currently in a transitional period, during which companies can choose to claim under AVEC or the previous film, high-end TV, children’s TV or animation tax relief schemes for any qualifying expenditure incurred from 1 January 2024. Any new productions commencing principal photography from 1 April 2025, must be claimed under AVEC and, from 1 April 2027 onwards, all expenditure must be claimed under AVEC (even if the production commenced before 1 April 2025).

Conclusion

Overall, the set of announcements made at the Spring Budget have been welcomed by the UK film industry. IFTC, and the changes to AVEC in connection with visual effects costs, should result in a much-needed boost to independent film makers.

The sector has struggled in recent years due to shut-downs during the pandemic and last year’s Hollywood strikes; the hope is this kind of initiative will encourage British indie film producers to continue pursuing their craft and in turn attract new creative talent, sustain jobs and create new opportunities.

This article was co-authored by Shriya Lakhani, Trainne Solicitor at CMS.