Policy paper

HMT-HMRC policy note – UK Independent Film Tax Credit

Updated 12 April 2024

Background

At Spring Budget 2024, the Chancellor announced the UK Independent Film Tax Credit (IFTC). Under IFTC, eligible films will be able to opt-in to claim enhanced Audio-Visual Expenditure Credit (AVEC), at a rate of 53%, on their qualifying expenditure.

The government recognises the challenges faced by the independent film sector, the societal and cultural importance of UK independent film, independent film’s role in incubating talent, and the value of film-making investment across the UK.

That is why the government is introducing a transformational, generous enhanced tax credit, designed to boost the production of UK independent films and support UK talent in films.

What are the conditions to qualify?

To be eligible for the IFTC, films will need to have production budgets (excluding marketing and distribution) of up to £15 million.

Films will also need to meet criteria set out in a new British Film Institute (BFI) test, with the expectation that films will need to meet at least one of the following conditions:

• Have a UK writer; or

• Have a UK director; or

• Be certified as an official UK co-production.

Qualifying productions must have started principal photography on or after 1 April 2024, and only expenditure incurred on or after 1 April 2024 can be claimed.

If claiming the IFTC, separate claims for the visual effects and animation uplifts cannot be made. This is because the IFTC rate of 53% has been specifically calculated based on independent film sector trends.

The IFTC will not be available for TV programmes. As with the standard Audio-Visual Expenditure Credit rate, for a film to qualify for IFTC it must be intended for theatrical release.

The IFTC will be an optional enhanced tax credit for productions that already meet the conditions of AVEC. These include (but are not limited to):

• Productions must be certified as culturally British by the BFI;

• Productions must be made by a UK production company;

• At least 10% of a production’s core expenditure must be used or consumed in the UK. Provided this threshold is exceeded, AVEC can then be claimed on qualifying UK core expenditure (further details below).

How will the credit be calculated?

The credit will be calculated in the same manner as AVEC on “core expenditure”: expenditure which is incurred on production activities, and not ancillary activities such as marketing or distribution.

A qualifying company can claim the IFTC on up to 80% of its core expenditure on a film, or on the amount of UK core expenditure, if that is less. This means that a film with a £15 million budget would have a maximum of £15 million total core expenditure, of which £12 million (80%) would qualify for IFTC, provided all of that £12 million was used and consumed in the UK.

The qualifying expenditure figure is multiplied by the credit rate of 53% to give the amount of the “above the line” credit before tax. The maximum credit a film can receive is £6.36 million, which is based on the maximum amount a film would be entitled to if it had total core expenditure of £15 million.

That credit is subject to corporation tax at the applicable rate, and must be set against any other tax liabilities of the company before it can be paid to the company as cash:

• Assuming a company pays corporation tax at 19%, the most credit a film could therefore receive in cash is £5.15 million. If a claim were to be made under AVEC for the same film (entitled to 34% credit), the most it could receive is £3.30 million.

• Assuming a company pays corporation tax at 25%, the most credit a film could receive in cash is £4.77 million. If a claim were to be made under AVEC for the same film (entitled to 34% credit), the most it could receive is £3.06 million.

The BFI will assess film budgets to certify that IFTC films meet the budget condition. If a film’s budget subsequently exceeds £15 million, the production company can choose either to continue to claim IFTC at 53% up to a maximum of £6.36m credit before tax, or choose instead to claim AVEC at 34% on all its qualifying expenditure.

When can it be claimed?

Claims can be submitted to HMRC from 1 April 2025 onwards, in respect of expenditure incurred from 1 April 2024, provided a film began principal photography after 1 April 2024.

When submitting claims, companies must submit an additional information form for the relevant period, accompanied by their BFI certificate. The claim will then be submitted as part of the Company Tax Return.

Claims will then be checked and paid out provided that all necessary documentation has been provided and the claim is not identified as requiring further review. If there are any questions on aspects of this note, please contact Stephanie.Martinez@hmrc.gov.uk at HMRC and SuttonWilliams@hmtreasury.gov.uk at HM Treasury