Animation Tax Relief
From April 2024 the new Audio-Visual Expenditure Credit (AVEC) will replace the current film, high-end TV, animation, and children's TV tax reliefs. The rates of relief will be as follows:
- Film and high-end TV: 34%
- Animation and children's TV: 39%
These reforms are intended to make the UK a more attractive place to produce audio-visual content. The government believes that the new AVEC will provide a significant boost to the UK's creative industries, and that it will help to create jobs and generate economic growth.
The information provided below will remain in effect till April 2024.
Who can qualify for Animation Tax Relief?
In order to qualify the company must be involved with decision-making and directly negotiate contracts and pay for rights, goods and services. It must also be involved throughout development from pre-production until completion.
What is being produced by the company must be certified as British by passing a cultural test. If it does not pass the cultural test it must qualify through an internationally agreed coproduction treaty. The certification is organised by the British Film Institute (BFI) on behalf of the Department of Digital, Culture, Media and Sport.
For work which is uncompleted the BFI will issue an interim certificate and a final certificate will be issued when production is completed.
- The animated programme must be intended to be broadcast on television or streamed online
- The programmes core costs on animation must be at least 51%
- At least 10% of the core costs must relate to activities in the United Kingdom
Animation Tax Relief is not available in respect of:
- Advertisements or promotional programme
- News, current affairs or discussion programme
- Quizzes or game shows, panel shows, variety shows or any other similar programme
- Consists of, or includes any element of competition or contest
- Is produced for training purposes
How much can you claim?
Qualifying companies can claim an additional deduction on their Corporation Tax Return which will reduce their profits or increase any loss thereby reducing their Corporation Tax liability. As an alternative they can surrender a loss in return for a repayable tax credit.
The additional deduction will be the lower of:
- 80% of the total core expenditure
- the amount of core expenditure in the United Kingdom
Essentially, core expenditure is expenditure incurred on pre-production, principal photography and post-production. It excludes expenditure on development, distribution or other nonproduction activities.
If the company is shown to make a loss after applying the additional deduction on it’s Corporation Tax Return, all or part of the loss can be surrendered in return for a repayable tax credit at a rate of 25%.
The claim should be made within one year of the company’s filing date and can be amended or withdrawn within that period.
Working examples for Animation Tax Relief
An animation production company produces a short series of cartoons to be streamed online on CBBC. It generates income of £1m in their current financial year and as part of producing the episodes it has a total costs of £700,000.
Of the £700,000 in costs during the financial year it has qualifying core expenditure of £600,000(1) .
Of the same £700,000 in costs during the financial year it has qualifying core expenditure of £450,000(2) which was spent within the UK.
Corporation Tax filing would be as follows if Animation Tax Relief was not applied:
Income: £1,000,000
Expenditure: £ 700,000
---------------
Profit/Loss: £ 300,000
Corporation Tax Liability: £ 57,000
(£300,000 x 19%)
Corporation Tax filing would be as follows if Animation Tax Relief was applied:
Income: £1,000,000
Expenditure: £ 700,000
Additional Deduction: £ 450,000
(lesser of (1) 80% of £600,000 and (2) £450,000)
---------------
Profit/Loss: £ (150,000)
Repayable Tax Credit: £ 37,500
(£150,000 x 25%)
As the production company made a loss of £150,000 after applying the additional deduction permitted under Animation Tax Relief, it would not pay any Corporation Tax, but would receive a repayable tax credit of £37,500. A difference of £94,500 which they could potentially invest in other projects.
Next Steps
If you or your organisation have a potential claim for tax relief, or would like further information about the process you can get in touch with us to arrange a no obligation meeting either by phone or in person.
Make An Animation Tax Relief Enquiry
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