The creative industries tax reliefs: Policy and development

The creative industries tax reliefs allow companies in a number of creative sectors to reduce the amount they have to pay in corporation tax. The relevant sectors are those involved in the making of films, high-end TV, children’s TV, animation, video games, theatrical productions, orchestral productions, and exhibitions in museums and galleries. The calculation of the relief is broadly similar across these sectors, although in some cases different rates apply. For example, the rate of payable tax credit for films is 25%, whereas for theatrical productions it is 45% or 50% (according to the type of production). Depending on the type of creative output, different eligibility criteria also apply.

These tax reliefs have been legislated for in separate Finance Acts. These provisions are consolidated in parts 15 to 15E of the Corporation Tax Act 2009, as amended.

Cost and benefit of the reliefs

Between 2006/07 and 2022/23 (the last year where data is available), these tax reliefs had a cumulative cost of £12.5 billion to the government. Of this sum, just over £2.2 billion was paid in 2022/23. In this year, it was claimed by 3,615 companies relating to just over 9,000 projects. Half of the relief in this year was given to high-end TV productions, which accounted for £1.1 billion in relief. Research undertaken by industry bodies, as well as by HM Revenue and Customs (HMRC), has shown the reliefs have been successful in attracting investment to the UK creative industry.

How do the reliefs work?

Although different eligibility criteria apply according to the reliefs, their structure is broadly similar and was modelled around the format of the Film Tax Relief (FTR), the first relief introduced. Production companies can deduct part (in some cases, all) their qualifying expenditure from profits before calculating tax. This deduction is known as the ‘additional deduction’. If the additional deduction results in the production no longer making a profit, or increasing the size of a loss, then some (or all) of this loss can be surrendered in exchange for a payable tax credit. The rates of payable credit vary according to the creative industry concerned.

Recent history of the creative tax reliefs

Prior to 2007, there were already existing provisions to support British film-making, but there was concern that filmmakers were not receiving the benefit of it, and that the set-up of the relief left it open to avoidance schemes. The Labour Government therefore introduced a new tax relief for film production: The creation of FTR was announced at Budget 2004 (PDF), and it came into force on 1 January 2007.

As the new relief proved successful, the Coalition and Conservative Governments introduced new reliefs for animation, video games, and high-end TV (at Budget 2012); for theatre (at Budget 2014), children’s TV (at Budget 2015), orchestras, (at Budget 2016), and museum and galleries (at Autumn Statement 2016).

Recent developments: 2020 to 2024

The Covid-19 pandemic posed major challenges to creative sectors. The creative tax reliefs were fundamental to these industries as the Covid-19 pandemic put companies at risk. Aside from a package of measures provided by the Department for Digital, Culture, Media and Sport and HM Treasury to support recovery of the arts industry, in October 2021 the government also introduced temporary higher rates of tax relief for theatres, orchestras, and museums and galleries. Although the rates were supposed to be phased back to their pre-pandemic levels by 2024/25, the higher rates were extended to last until 2026/27 at Spring Budget 2023. At the Budget in March 2024, then Chancellor Jeremy Hunt announced the reliefs would be permanently set at a higher rate. Industry representatives and professionals, who had campaigned for this measure, reacted positively to the announcement. Provision for this was made in sections 16 to 18 of the Finance (No. 2) Act 2024.

Alongside policy changes to the reliefs for theatres, orchestras, and museums, in 2022 the government consulted on introducing a new fiscal support model for the ‘audio-visual’ tax reliefs (covering film, high-end TV, children’s TV, animation, and video games). In March 2023, the government announced that these reliefs would be replaced by two new ‘expenditure credits’ (one covering film, animation, and TV productions, and the other one covering video games). At Budget 2024, the Conservative Government also announced that a higher expenditure credit rate would apply to low-Budget independent British films. Provision for this new credit is made by sections 14 and 15 of the Finance (No. 2) Act 2024.

Although several elements of the new expenditure credits are similar to the existing reliefs, the credits’ calculation and accounting is different. The new expenditure credits will ensure production companies will not be subject to a ‘top-up tax’ under the Organisation for Economic Cooperation and Development’s (OECD) Pillar Two rules.

Production companies can already claim under the expenditure credit regime if they wish. Productions beginning from 1 April 2025 will only be able to claim under the expenditure credit regime. They will completely replace the audio-visual tax reliefs from 1 April 2027.

Provision for the expenditure credits is made in the Finance Act 2024, section 3 and schedule 2. The measure is consolidated in part 14A of the Corporation Tax Act 2009, as amended.