The UK’s creative industries are a cornerstone of the national economy, contributing an estimated 2.4 million jobs and £124 billion in Gross Value Added (GVA) in 2023. From award-winning films to globally successful video games, this success has been supported in part by a suite of corporation tax reliefs designed to attract investment and encourage production in the UK.
Film Tax Relief was introduced in 2007, and its success led to the expansion of reliefs to high-end television, animation, children’s television, and video games. Following the Finance Act 2024, these legacy reliefs are being replaced by a new regime of expenditure credits, namely the Audio Visual Expenditure Credit (AVEC) and the Video Games Expenditure Credit (VGEC). The transition is being phased in and will be fully complete from 1st April 2027, when the previous reliefs will cease entirely. For further information about the commencement of these transitions, you can read HMRC’s Creative Industries Expenditure Credit Manual.
This is your complete guide to UK Creative Industries Tax Relief, including AVEC and VGEC rates, qualifying costs, how to claim, and key deadlines through to April 2027.
Table of Contents
What are Creative Industries Tax Reliefs?
Creative Industries Tax Reliefs are corporation tax incentives offered by the UK government to support the growth of the arts, digital industries, and the creative economy. They aim to ensure the UK remains a competitive destination for production, offsetting the generous incentives offered by other countries.
These reliefs allow qualifying companies to increase their allowable deductible expenditure when calculating their taxable profits, thereby reducing their overall corporation tax liability. For loss-making companies, these losses can be surrendered to HMRC in exchange for a payable tax credit, a cash payment that provides crucial liquidity during long production cycles.
To qualify, films, television programmes, and video games must be certified as British by passing a relevant cultural test administered by the British Film Institute (BFI), or qualify as an official co-production. The cultural test operates on a points-based system, assessing:
- Cultural Content: Whether the story, characters, language, or setting reflect British or EEA culture.
- Cultural Contribution: Whether the production contributes to British creativity, heritage, or diversity.
- Cultural Hubs: Where key production activities take place in the UK.
- Cultural Practitioners: The nationality or residency of key personnel.
In 2025, the government reinforced its commitment to the sector by publishing the Creative Industries Sector Plan to drive long-term economic growth across the UK. This plan announced £380 million in targeted government support over the spending review period, including screen, music and video games growth packages, as well as new creative clusters to accelerate research and development in the sector.
Benefits of claiming Creative Industries Tax Reliefs
Claiming Creative Industries Tax Relief provides a range of meaningful cash benefits for qualifying companies rather than forgoing the relief. These benefits include:
- Reducing Corporation Tax: By converting qualifying expenditure into a credit that offsets your corporation tax liability.
- Improved Budgeting: AVEC and VGEC are above-the-line credits that appear clearly in the profit and loss account, which helps support investment from lenders.
- Reduced Financial Risk: Credits are payable even if the project makes a loss, reducing the financial impact for riskier ventures.
- Supporting Cash Flow: Credits are paid directly into the company’s bank account. This payment can be made after or during production, supporting projects with longer production cycles.
How AVEC and VGEC differ from the legacy reliefs
Under the legacy regime, most reliefs work by providing an additional corporation tax deduction, and for loss-making companies, a payable credit linked to the surrendering losses.
AVEC and VGEC work differently from the previous reliefs. Under the old system, companies mainly received relief through an additional corporation tax deduction based on qualifying production costs, with loss-making companies able to claim a payable credit. The new regime instead provides an expenditure credit calculated as a percentage of qualifying costs, which is shown as income in the company’s accounts. This credit can then be used to reduce the company’s corporation tax bill, or in some cases result in a payment from HMRC.
Example of Industries Tax Relief vs Legacy Reliefs
A UK film company makes £5m from producing a movie, incurring £2m in total core costs. They meet all eligibility requirements for creative industries tax relief.
Example of AVEC:
Under AVEC, qualifying expenditure is the lower of UK qualifying expenditure or 80% of total core expenditure. An additional deduction equal to this qualifying expenditure can then be claimed. In this case, 80% of the productions core costs are eligible for the credit, resulting in £1.6m qualifying.
As a film, the credit rate applied is set at 34%, resulting in an AVEC credit of £544,000. This is added to the taxable profit of the production for the calculation of corporation tax.
| Description | Amount (£) |
|---|---|
| Film Income | £5,000,000 |
| Film Core Costs | £2,000,000 |
| Profit before credit | £3,000,000 |
| AVEC Credit | £544,000 |
| Taxable Profit | £3,544,000 |
| Corporation Tax 25% | £886,000 |
| Less AVEC Paid | £544,000 |
| Total Corporation Tax | £342,000 |
| Total CT Without AVEC | £750,000 |
| Net Saving | £408,000 |
Without AVEC, the production company would have paid £750,000 in corporation tax (25% of £3m), resulting in a net saving of £408,000.
Example of Old Regime:
The same film production is eligible for the older regime, Film Tax Relief (Up to 1st April 2027), operating through a two-stage process.
First, following a similar process to AVEC, 80% of the production’s core costs are eligible for an additional deduction. In this example, £1.6m of qualifying expenditure;
| Description | Amount (£) |
|---|---|
| Film Income | £5,000,000 |
| Film Core Costs | £2,000,000 |
| Profit before Deductions | £3,000,000 |
| FTR Deduction (80%) | £1,600,000 |
| Taxable Profit | £1,400,000 |
| Corporation Tax 25% | £350,000 |
| Total CT without FTR | £750,000 |
| Net Saving | £400,000 |
Unlike AVEC, Film Tax Relief is not a credit but provides an additional tax reduction when calculating its taxable profits.
Without FTR, the production company would have paid £750,000 in corporation tax (25% of £3m), resulting in a net saving of £400,000.
Comparing Industries Tax Relief VS Old Regimes
When comparing the two regimes, AVEC provides an additional saving of £8,000 (2% improvement) compared with Film Tax Relief. In both AVEC and the older FTR regime, when a company makes a loss, payments are still applied.
Current Creative Industries Tax Reliefs (being phased out in April 2027)
While AVEC and VGEC are now mandatory for new productions, the legacy reliefs remain available for projects that began before 1st April 2025 and are still in production. These legacy reliefs will cease, irrespective of production date, from April 2027, with productions having to apply for AVEC and VGEC schemes. All these schemes still require BFI certification to qualify.
The reliefs being phased out are:
- Film Tax Relief: A single rate of 25% applied to qualifying expenditure for films intended for theatrical release.
- High-End Television Tax Relief: For dramas, comedies and documentaries with core expenditure of at least £1 million per hour and a slot length greater than 30 minutes.
- Animation Tax Relief: Requiring at least 51% of total core expenditure to be on animation production.
- Children’s Television Tax Relief: Where the primary target audience is children under 15, with at least 51% of core expenditure on animation or live action (for non-animation programmes).
- Video Games Tax Relief (VGTR): Requiring at least 25% of core expenditure to be incurred on goods or services from the UK or EEA.
It is important to note that other cultural reliefs specifically for theatre, orchestras, and museum and gallery exhibitions remain unchanged under their current frameworks and are not affected by the transition to AVEC and VGEC.
New Creative Industries Tax Reliefs (Compulsory from April 2027)
From April 2027, the creative industries will operate under two main expenditure credits: the Audio Visual Expenditure Credit (AVEC) and the Video Games Expenditure Credit (VGEC). Unlike the old reliefs, which provided an enhanced deduction, these are “above-the-line” credits and are therefore taxable. This means that while the headline credit rate looks higher, the net benefit after corporation tax is the figure companies should focus on.
Audio Visual Expenditure Credit (AVEC)
Audio Visual Expenditure Credit (AVEC) is the unified credit for British film, television, and animation productions, effectively merging and replacing the four separate audio-visual reliefs that preceded it. It is designed for UK-based production companies responsible for the overall making of the film or programme.
Eligibility and claim rates for AVEC
To claim AVEC, your production must meet specific criteria:
- BFI Certification: Certified as British via the cultural test or official co-production.
- UK Spend: At least 10% of the core production costs must relate to activities in the UK.
- Release Intent: Films must be intended for theatrical release. Television programmes must be intended for broadcast (including online streaming platforms).
- TV Genre: Must be a drama, comedy, documentary, animation or children’s programme.
AVEC offers a taxable credit on up to 80% of core costs, depending on the type of production:
- Standard Rate (Films & HETV): A 34% credit (25.5% net after CT).
- Enhanced Rate (Animation & Children’s TV): A 39% credit (29.25% net after CT).
- Independent Film Tax Credit (IFTC): 53% on qualifying spend (39.75% net after CT) for films under £23.5m core expenditure. Only the first £15m qualifies. Requires a British lead writer/director or official UK co-production.
- VFX: From 1st January 2025, qualifying UK VFX costs attract the enhanced 39% credit rate (29.25% net). The 80% cap does not apply to UK VFX spend.
What counts as qualifying expenditure?
Qualifying expenditure for AVEC includes core production costs incurred when the activity or asset use takes place in the UK, regardless of the supplier’s location. Typical AVEC qualifying expenditure covers:
- Pre-production costs: Scripting, casting, finalising the script and creating storyboards.
- Production costs: Studio and location costs, crew wages and equipment hire.
- Post-production costs: Editing, VFX, sound design, and colour grading.
Video Games Expenditure Credit (VGEC)
Video Games Expenditure Credit (VGEC) is the successor to Video Games Tax Relief (VGTR), offering a reformed structure for UK game developers. It is designed for UK-registered companies that are responsible for designing, producing and testing their own video games.
Eligibility and claim rates for VGEC
To claim VGEC, your production must meet specific criteria:
- Company Structure: Must be a Video Games Development Company (VGDC), meaning a UK-registered company responsible for designing, producing and testing the game.
- Accountability: The VGDC must be responsible for the game as a whole, including managing contracts and paying suppliers.
- BFI Certification: The game must pass the Video Games Cultural Test to be certified as British by the BFI.
- Public Supply: The game must be intended for supply to the general public. Games made for advertising, promotion, training or gambling are excluded.
- UK expenditure: At least 10% of core costs must be spent on goods and services used or consumed in the UK (reduced from the 25% UK/EEA threshold under VGTR).
VGEC provides a taxable credit of 34% on qualifying expenditure (25.5% net after corporation tax). The amount of qualifying expenditure you can claim is the lower of:
- 80% of the total core expenditure incurred on the game, or
- The actual core expenditure incurred in the UK
Unlike VGTR, there is no £1 million cap on subcontractor costs, and there is no minimum or maximum claim value, provided the 10% UK expenditure threshold is met.
What counts as qualifying expenditure?
Qualifying expenditure for VGEC covers only core costs directly related to designing, producing, and testing the video game, where the goods or services are used or consumed in the UK. Typical qualifying costs include:
- Staff costs: Salaries and wages for developers, designers and project managers.
- Software and hardware: Only if directly used in the development of the game.
- Third-party contractors: Development work (previous £1 million subcontractor cap has been removed).
- Audio and animation costs
Only costs incurred once the project has been “green-lit” qualify. Speculative development costs incurred before this point are not eligible.
How to claim for AVEC and VGEC
The claim process for AVEC and VGEC is similar and involves both the BFI and HMRC. The key steps are:
- Apply to the BFI
- Obtain a final certificate
- Prepare your claim: Ensure you have clear records of qualifying UK expenditure (AVEC: production costs; VGEC: development costs).
- Complete Additional Information Form (AIF)
- Include the claim in your Corporation Tax Return: Ensuring credits have been correctly calculated.
DS Burge & Co can guide you through each stage of the process, from obtaining certification to submitting a compliant claim through HMRC. For further guidance, speak to one of our expert tax advisors.
Key Dates for Creative Industries Tax Relief
Timing is critical in production, and the transition to expenditure credits has followed a strict timeline. Here are the key dates for Creative Industries Tax Relief that your business needs to know:
- 1st January 2024: The new Audio Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC) were introduced by the Finance Act 2024, which amended the Corporation Tax Act 2009 to establish a new legislative framework for these reliefs.
- 1st April 2025: AVEC and VGEC tax relief became mandatory for all new productions starting on or after this date. If production filming or active development of a video game has commenced or entered active development on or after this date, claims must now be made under the new credit regime. The legacy tax reliefs are no longer available for these projects.
- Autumn Budget 2025: The Chancellor delivered the Autumn Budget on the 26th November 2025, making several key announcements for the creative industries. These included confirmation of the enhanced VFX credit rate and full implementation of the Independent Film Tax Credit (IFTC). Technical amendments were announced, and draft legislation was published in preparation for the Finance Bill 2026.
For a full analysis of the changes and their implications, you can read our Autumn Budget 2025 article.
- 1st April 2027: From this date, the legacy reliefs will cease entirely. All expenditure incurred from 1st April 2027, on any production (regardless of when it started), will only be eligible for relief under AVEC or VGEC.
“Having advised numerous clients through this transition, one thing people often don’t realise is the importance of early engagement with the BFI certification process. Securing an interim certificate as soon as possible is crucial for cash flow, especially with the ‘additional information’ forms required by HMRC. The move to AVEC and VGEC is broadly a positive transition, with enhanced rates for numerous creative industries. The net benefit after tax is often higher than under the old system, but only if you structure your claim correctly from day one. It is vital to seek expert guidance, particularly as the deadline approaches”.
- Kieran Burge, Partner and Tax Specialist at DS Burge & Co
Conclusion
The transition from legacy tax reliefs to Audio Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC) represents a fundamental change in how the UK supports its creative industries. With mandatory implementation now in force for new productions and the April 2027 deadline approaching, understanding these new rules is essential for protecting your project’s bottom line. It is important to ensure that your project is compliant with the new credits and that the tax savings align with the overall budget projections. Seeking expert advice is highly recommended due to the complexity of applying for BFI certification and compiling evidence to support claims.
At DS Burge & Co, our expert advisors can help you check your eligibility for AVEC and VGEC schemes, support with BFI applications and ensure that your production corporation tax is compliant with HMRC. Speak to one of our team today for personalised advice.