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Section 1179EC Corporation Tax Act (CTA) 2009

Additional credit for visual effects (VFX) costs is only available in respect of ‘relevant VFX expenditure�. Relevant VFX expenditure is expenditure that:

• meets the definition of relevant global expenditure
• is UK expenditure
• is incurred on relevant VFX work that is carried out in the UK

Expenditure only qualifies for additional credit if it matches all three of these criteria.

Expenditure that doesn't qualify for additional credit still qualifies for 'regular' Audio-Visual Expenditure Credit (provided it meets the usual qualifying conditions).

Meaning of ‘relevant global expenditure� and ‘UK expenditure�

Relevant global expenditure is core expenditure that is not excluded expenditure. It must be taken into account when calculating the profit/loss of the separate production trade. See CREC051000 for more information.

UK expenditure is expenditure on goods and services that are used or consumed in the UK. See CREC054000 for more information.

Meaning of ‘carried out in the UK�

Work is carried out in the UK if the person performing the work is physically based in the UK. It does not matter if the VFX vendor they work for is based or headquartered overseas, as long as the person performing the work is located in the UK.

VFX artists may work using cloud computing services that are hosted overseas. Their work will still qualify if the artists themselves are UK-based.

If a VFX artist or other person performing relevant VFX work carries out their work partly in the UK and partly overseas, the cost of their services should be apportioned on a just and reasonable basis.

Work to be both carried out in the UK and used or consumed in the UK

Relevant VFX expenditure must be both UK expenditure and expenditure that is on work carried out in the UK.

HMRC considers VFX services to be used where the work to provide ther services is carried out. This means that VFX work that is carried out in the UK will also be used or consumed in the UK and will therefore meet the definition of UK expenditure as well.

Meaning of ‘relevant VFX work�

Relevant VFX work is defined in section 1179EC(8) CTA 2009 as ‘work consisting of the use of computer technology to create or alter images for inclusion in the film or programme�.

The definition does not extend to the principal photography that creates the images that VFX artists work on.

However, the definition does cover a range of common VFX services, including:

• Pre-visualisation (provided it does not belong to the development phase â€� see CREC010400)
• Concept design (provided it does not belong to the development phase)
• Storyboarding to plan VFX work/shots
• Creating CGI backdrops, characters and wholly CGI shots to be added to filmed footage
• Compositing
• Colour correction
• Beauty work
• Character and creature animation
• 3D modelling
• LIDAR scanning and photogrammetry (where it is used to create VFX environments and assets)
• Lighting and rendering
• Digital matte painting
• Temporary shots used for editing
• Motion capture
• Stereo conversion
• Producing images for virtual sets

Note that while producing images for virtual production sets is relevant VFX work, the cost of buying/hiring the screens or volumes and running them during principal photography is not qualifying spend.

The cost of third party vendor contracts to provide any of these common services, or other work to digitally alter or create images, is allowable.

VFX work carried out by the production company

Sometimes, the production company may hire individual VFX staff and incur VFX costs directly. In these cases, where VFX-related costs only indirectly contribute to relevant VFX work, they will not qualify. The following guidance sets out which expenditure can and cannot be included as relevant VFX expenditure by production companies.

Relevant VFX work includes the work of VFX supervisors who manage the artists carrying out VFX services. This is because they make a direct contribution to the creation and alteration of images by ensuring the work delivered aligns with the director or producer’s creative vision for the film or programme.Ìý The work of senior managers or support staff on the production who do not make a direct contribution to the creation or alteration of images does not count as relevant VFX work.

The definition also includes the computer technology that is essential to carry out relevant VFX work. This includes:

• Dailies projection for VFX shots
• File conversion, encoding, decoding and similar processes needed to prepare filmed footage for VFX artists to use
• Short-term software licences (less than 2 years)
• Cloud computing and storage services

Computer technology also includes the use of artificial intelligence (AI) and AI-assisted tools.

This means most software and processing costs qualify, provided they relate to VFX work and not the film or TV programme production in general. However, the cost of hardware will generally be capital expenditure and will not qualify for relief. Long-term software licences may also be capital expenditure, depending on their role in the business (see BIM35810).

The cost of work that contributes to the creation of VFX shots but does not involve the use of computer technology to create or alter images does not qualify. For example:

• Travel and subsistence costs of VFX consultants and other staff
• Transport and storage costs
• Rent and other overheads
• On set supplies such as batteries, film, and tape

Work that does not relate directly to the creation or alteration of images will similarly not qualify. This includes finance, budgeting, logistics and project management work that relates to the VFX on a production, but is not in itself the work of creating the VFX for the production.

Work that relates to VFX but also has wider applications within the production process does not qualify. For example, motion control may be used to ensure that the camera follows the same track for each take of a scene. While this is helpful for VFX purposes, it is also a common technique that helps with achieving the creative vision for the scene and with other, non-VFX editing. It is therefore not part of relevant VFX work.

Following the same principle, fees paid to the director, videographers and other staff who work on principal photography are not relevant VFX expenditure. Some of their work may contribute to VFX work, but it is not in itself VFX work.

Similarly, if an actor who provides the reference performance for motion capture also performs alongside other actors during principal photography (for blocking purposes or as a separate character), the actor’s fee must be apportioned to remove any element that relates to principal photography instead of motion capture. Only the proportion of the fee that relates to the actor’s time providing motion capture references qualifies for additional credit.

Other post-production services

Sometimes, VFX vendors offer VFX services as part of a wider package of post-production services, such as editing and sound design. These services do not meet the definition of relevant VFX work. Where this is the case, the production company must apportion the fee paid to the vendor on a just and reasonable basis, to exclude the element that relates to non-VFX services.

Capital expenditure and research and development costs

Capital expenditure is not eligible for ‘regular� Audio-Visual Expenditure Credit (AVEC), unless it is deemed to be capital only by virtue of being incurred on creating a capital asset (the film or TV programme). See CREC037100 for more information. The same rule applies to relevant VFX expenditure � capital expenditure generally does not qualify.

Any expenditure that meets the qualifying criteria for relief as research and development expenditure is also excluded from AVEC and additional VFX credit. Companies should claim research and development relief for such expenditure. See CREC051000 for more information.

Distinction between VFX and animation

VFX and animation share several processes and often require similar skills, tools and software. However, HMRC does not consider them to be identical categories. Generally, VFX involves the manipulation of existing live-action footage, whereas animation is more focused on the creation of footage from scratch.

The definition of relevant VFX work includes the creation of images, but the usual expectation is that these created images are either added into live-action footage (such as CGI backdrops on a greenscreen) or used to augment and fill gaps between live-action shots � not that they make up the majority of the images of the film or programme.

An animated production may incur some VFX costs, but these will be limited to touch-up and finishing services such as colour correction, lighting and rendering. It does not include the core animation process, which instead is akin to principal photography for a live-action production.