Policy paper

Creative industries and Research and Development Expenditure Credits — administrative measures

Published 26 November 2025

Who is likely to be affected 

Companies claiming Research & Development Expenditure Credits (RDEC), and companies claiming Audio-Visual Expenditure Credits (AVEC) or Video Games Expenditure Credits (VGEC) for film, TV programme or video game production. 

General description of the measure 

The measure contains three technical amendments: 

1. Additional wording to clarify that payments made between group companies in return for one company surrendering RDEC, AVEC or VGEC to the other company are to be ignored for Corporation Tax purposes. Payments are only ignored if they do not exceed the amount of the credit surrendered. 

2. VGEC only — a correction of the transitional rules for video games which switch from the Video Games Tax Relief regime to VGEC, so that European expenditure is accounted for at step 2 of the VGEC calculation. 

3. AVEC only — updates to the calculation of special credit for visual effects (VFX) to prevent anomalous results and set out the treatment of negative results if they arise.  

Policy objective 

Amendment 1 provides clarity for claimants, and addresses a long-standing ask from companies for an agreed treatment concerning payments in return for credit. 

Amendment 2 will ensure the transitional rules between Video Games Tax Relief and VGEC reflect the intended policy of including qualifying expenditure from previous periods when calculating VGEC claims. 

Amendment 3 ensures fairness between companies claiming special VFX credit, by closing a loophole in the current rules that would otherwise result in unintended generosity for some companies, and by preventing incorrect calculation results from occurring for some companies. 

Background to the measure 

RDEC was introduced from 1 April 2013 for companies carrying out research & development activities. AVEC and VGEC were introduced from 1 January 2024 and will fully replace the existing Film, High-end Television, Animation, Children’s Television and Video Games Tax Reliefs from 1 April 2027. 

This measure was announced at Budget 2025 and will be legislated in Finance Bill 2025-26. 

Detailed proposal 

Operative date 

Amendment 1 will have effect for payments made on or after 26 November 2025. 

Amendment 2 will have effect for video games which switch to VGEC in an accounting period beginning on or after 26 November 2025. 

Amendment 3 will have effect for claims to AVEC and special credit for VFX in respect of accounting periods beginning on or after 26 November 2025. 

Current law  

For amendment 1, the current law is included in sections 1042N and 1179CE Corporation Tax Act (CTA) 2009.

For amendment 2, the current law is in Part 5 of Schedule 2 to the Finance Act 2024.

For amendment 3, the current law is in section 1179EC CTA 2009. 

Proposed revisions 

Amendment 1 will insert wording into the current law sections, stipulating that where: 

• a company surrenders an amount of RDEC, AVEC or VGEC to a company in the same group
• the recipient company makes a payment to the surrendering company in return
• the payment does not exceed the amount of credit surrendered

The payment in return is to be ignored when calculating the profits of the surrendering company or the recipient company for Corporation Tax purposes. It may still be recognised in the accounts of each company. The payment is also not to be regarded as a distribution for Corporation Tax purposes. 

Amendment 2 will add to the current transitional rules for video games that move into VGEC from Video Games Tax Relief. The new rule will make it so that step 2 of the VGEC calculation (contained in section 1179CA CTA 2009) reads as though ‘UK expenditure’ refers to European expenditure in respect of accounting periods before the game switches to VGEC, and UK expenditure for all other accounting periods. This removes the potential for unintended unfair treatment between different video games depending on their European and UK expenditure pattern, and protects VGEC from abuse by closing a loophole which allows some companies to claim more relief than intended. 

Amendment 3 will amend the special VFX credit legislation. Sometimes, if a company claims special credit over multiple accounting periods, the special credit calculation can produce a negative result. If companies do not claim this negative amount, they will receive more special credit than originally intended by the policy. 

To counteract this, amendment 3 adds wording to the current law to stipulate that if the special credit calculation gives a negative result, that result must be set against the overall AVEC claimed for the period. To ensure that negative amounts are correctly applied where necessary, companies will be required to make a claim for special credit for every accounting period in respect of which they make a claim to ‘regular’ AVEC (excluding pre-completion periods). There are also some consequential rules which explain how to treat negative results when making claims in subsequent periods. 

Note — these changes do not reduce the overall generosity of the AVEC scheme. There is more detail on negative amounts in the Creative Industries Expenditure Credit manual (CREC061400 onwards). 

Additionally, the special credit calculation assumes that VFX costs are included in the main AVEC calculation before they are included in a claim for special credit. If that is not the case, it can lead to incorrect results. To prevent this, amendment 3 will also add wording to require VFX costs to be included in the main calculation before they can be subject to a claim for special credit. 

All three amendments will be published in Finance Bill 2025-26.  

Summary of impacts 

Exchequer impact (£ million) 

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact. 

Macroeconomic impact 

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

RDEC, AVEC and VGEC are only available to companies. There is no impact on individuals, households or families. 

Equalities impacts 

These amendments only affect businesses. Therefore, it is not anticipated that there will be disproportionate impacts on those in groups sharing protected characteristics. 

Administrative impact on business including civil society organisations 

Overall, Amendment 1 is expected to impact businesses’ experience of dealing with HMRC by simplifying processes around payments in return for credit.

Amendment 1 will have a negligible administrative impact on the burdens for the roughly 1,900 film, television and video games production companies which can claim AVEC and VGEC, and the roughly 10,000 companies which claim RDEC. Companies in the same company group as RDEC, AVEC and VGEC claimants will also be affected.

Ongoing savings will include a reduction in administrative burden for companies by removing any requirement to account for payments in return for credit in tax computations. One-off costs will include familiarisation with the changes. No continuing costs are expected.

Amendment 2 will have a negligible administrative impact on the roughly 500 video games development companies which claim either Video Games Tax Relief or VGEC. One-off costs will include familiarisation with the changes. No continuing costs are expected. This amendment is not expected to impact businesses’ experience of dealing with HMRC. 

Amendment 3 will have a negligible administrative impact on the roughly 1,000 film and high-end television production companies which can claim special credit for VFX. There will be no impact for most claimants. HMRC estimates around 25 productions each year will be directly affected by the rules for negative amounts. One-off costs will include familiarisation with the changes and updating systems to reflect them. No continuing costs are expected. This amendment is not expected to impact businesses’ experience of dealing with HMRC. 

The amendments are not expected to impact civil society organisations. 

Operational impact (£ million) (HMRC or other) 

These amendments are not expected to have any operational impacts. There will be minor guidance updates to the additional information form companies must fill out as part of making a claim to AVEC or VGEC. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

The amendments will be monitored and assessed alongside other measures in the government’s package for Research & Development and creative industries tax relief changes, using data collected from company tax returns and the additional information form. 

Further advice 

Contact the creative industries policy team by email creativespolicy@hmrc.gov.uk for:

• any questions about this change
• queries about amendment 1 for RDEC