The Big Picture
Unlocking Film Tax Credits with Pennyhills
The UK film industry is celebrated globally for its creativity, talent, and production prowess. Behind every captivating story and stunning visual lies significant financial investment. The UK government actively supports this critical sector through robust incentives, now evolving into the Audio-Visual Expenditure Credit (AVEC) and the new Independent Film Tax Credit (IFTC). At Pennyhills, we are your expert guides through this dynamic landscape, ensuring your cinematic vision receives the maximum financial support it deserves.
What Are Film Tax Credits and How Do They Work?
Historically, the primary mechanism was Film Tax Relief (FTR), which offered an additional deduction to reduce Corporation Tax. However, the landscape has significantly transformed. Since January 1, 2024, and becoming the only scheme for new productions from April 1, 2025, the Audio-Visual Expenditure Credit (AVEC) has replaced FTR. This is not merely a name change; it represents a fundamental shift in how the relief is calculated and received.
The AVEC Model: A New Era for Film Finance
The AVEC operates as a taxable expenditure credit. This means it’s treated as taxable income that can either:
Reduce their Corporation Tax liability
Directly offsetting your company’s tax bill.
Receive a payable cash credit
A direct cash payment from HMRC, particularly valuable for productions that are not yet profitable or are operating at a loss.
This “above-the-line” credit provides greater transparency and often a more immediate financial benefit compared to the previous deduction model.
Key Qualifying Expenditure: The credit is calculated on your ‘core expenditure’ on the film, specifically focusing on costs incurred for goods and services used or consumed in the UK. This includes, but is not limited to:
Pre-production costs
Such as storyboarding, location scouting, and script finalisation (after initial development).
Principal photography costs
Including cast and crew salaries (for UK-based individuals), equipment hire, studio costs, and on-location expenses.
Post-production costs
Encompassing editing, sound mixing, visual effects (VFX), and colour grading.
Rates of Credit (Current & Future)
Standard AVEC
For most qualifying films, the headline rate is 34% of your qualifying expenditure. After Corporation Tax at 25%, this equates to a net benefit of 25.5%.
Enhanced AVEC for Animation: For animated films, a higher rate of 39% applies, resulting in a net benefit of 29.25%.
The UK Independent Film Tax Credit (IFTC)
This exciting new measure, effective for films where principal photography began on or after April 1, 2024 (with claims accepted from April 1, 2025), offers a significantly uplifted rate of 53% (a net benefit of 39.75%) for eligible lower-budget films. This is a powerful incentive for nurturing UK creative talent.
Enhanced Visual Effects (VFX) Relief
From April 1, 2025 (for expenditure incurred from January 1, 2025), qualifying UK VFX costs on films will benefit from an enhanced 39% rate, and crucially, the 80% cap on qualifying expenditure will be removed for these specific costs. This is a major boost for the UK’s world-leading VFX sector.
The AVEC and IFTC are generally capped at 80% of the total core expenditure (though, as noted, this cap will no longer apply to qualifying UK VFX costs from April 2025). This ensures the relief is primarily focused on expenditure within the UK.
Who Are Film Tax Credits For?
Film Tax Credits are specifically designed for UK-based Film Production Companies (FPCs) that are responsible for the entire lifecycle of a qualifying British film, from pre-production through to delivery.
To be eligible, your company must:
Be liable for UK Corporation Tax
Be the primary production company, meaning you are actively involved in decision-making, directly negotiate, contract, and pay for the rights, goods, and services that constitute the film’s core expenditure.
Be responsible for the film’s pre-production, principal photography, post-production, and delivery.
The film itself must meet stringent criteria to qualify for the relief:
Intention for Theatrical Release
The film must be intended for exhibition to the paying public at a commercial cinema, with a significant proportion of its earnings expected from theatrical release.
British Certification
This is paramount. The film must be certified as ‘British’ by the British Film Institute (BFI). This is achieved either by passing the cultural test (assessing UK content, cultural contribution, and involvement of UK practitioners/facilities) or by qualifying through an official international co-production treaty (where the UK has an agreement with another country, sharing creative and financial contributions).
Minimum UK Core Expenditure
At least 10% of the film’s total core expenditure must relate to activities incurred in the UK. This minimum threshold ensures the incentive benefits UK-based production.
Specific Eligibility for the New IFTC:
To qualify for the higher Independent Film Tax Credit (IFTC), in addition to the above, the film must:
- Have started principal photography on or after April 1, 2024.
- Have total core expenditure of up to £23.5 million, with the enhanced 53% rate applied to a maximum of £15 million of qualifying expenditure.
- Demonstrate a “Modified Creative Connection”: This means either the lead writer or director must be a British citizen or UK resident, OR the film must be an official British co-production. This specific criterion is designed to foster British talent.
These reliefs are invaluable for a wide spectrum of film production companies, from emerging independent filmmakers to established studios, enabling them to attract investment, manage costs, and keep the UK at the forefront of global cinema.
What to Expect From Pennyhills
Navigating the complexities of Film Tax Credits, especially with the recent transition to AVEC and the introduction of IFTC, demands specialist expertise. At Pennyhills, we don’t just process claims; we provide a strategic partnership rooted in deep industry understanding and a proactive approach. When you choose us, you can expect:
Authoritative Expertise in a Dynamic Landscape
We are constantly monitoring and interpreting the latest HMRC guidance and legislative changes, including the nuances of AVEC, IFTC, and the enhanced VFX relief. Our team possesses in-depth knowledge of the BFI’s cultural test and co-production requirements. We speak your language, whether it’s budget lines or production workflows, allowing for a seamless and efficient process.
Meticulous Claim Identification & Maximisation
Our process goes beyond simply collecting figures. We conduct thorough, detailed reviews of your project’s technical and financial aspects, working closely with your production team. We meticulously identify every piece of qualifying core expenditure, ensuring that even the subtle elements are captured and properly categorised, leading to a fully optimised claim under the correct relief (AVEC, IFTC, or the special VFX uplift). We ensure you don’t leave any legitimate relief unclaimed.
Seamless British Certification Guidance
The BFI certification is a critical gateway. We provide comprehensive guidance and support throughout this application process, helping you compile the necessary documentation and evidence to successfully meet the cultural test or co-production criteria. For IFTC, we’ll assist in demonstrating the “Modified Creative Connection.”
Robust Submission & Proactive HMRC Liaison
We prepare and submit your claim as part of your Company Tax Return, including the now mandatory Additional Information Form (AIF). Our claims are built to be robust, comprehensive, and fully compliant, significantly reducing the likelihood of HMRC enquiries. Should an enquiry arise (and with increasing scrutiny, this is a possibility), we act as your dedicated liaison, handling all communication, providing expert defence, and leveraging our deep legislative knowledge to resolve matters efficiently, allowing you to focus on your next production.
Accelerated Cash Flow for Future Projects
We understand that time is money in film production. Our streamlined process is designed to expedite the claim submission and resolution, ensuring you receive your payable cash credit or tax reduction as swiftly as possible. This vital cash flow can then be reinvested into your next project, fund crucial development, secure talent, or strengthen your company’s financial resilience.
Strategic Partnership Beyond the Claim
Our commitment extends beyond a single claim. We offer ongoing strategic advice on how to structure your future productions and manage your financial records to maximise long-term tax credit benefits. We become a trusted financial partner in your continuous cinematic journey, helping you navigate the evolving landscape and seize every opportunity to fund your creative ambitions.
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Find out if you Qualify
Don’t let the complexities of tax legislation overshadow your creative genius. Partner with Pennyhills, and let us help you write the financial success story for your next film.
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Get in touch with Sach and the team to find out more about how Pennyhills can transform your business.