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Section 1179EC Corporation Tax Act (CTA) 2009

Production companies making high-end TV programmes and films (excluding independent and animated films) can claim an additional amount of Audio-Visual Expenditure Credit (AVEC) in respect of relevant visual effects (VFX) expenditure incurred on their productions. Claims can only be made for the completion period or later periods, but cover all relevant VFX expenditure incurred on productions, including in pre-completion periods.

Relevant VFX expenditure is relieved at an uplifted relevant percentage of 39% and is exempted from the 80% cap that applies to relevant global expenditure at step 3 of section 1179CA(1) CTA 2009 (CREC060100). These two elements combine to produce the amount of additional credit.

Please see CREC061410 for more details of the qualifying criteria and CREC061420 for the definition of relevant VFX expenditure.

The following sections explain how to calculate the additional credit. Please see CREC061440 and CREC061450 for examples showing how the calculation applies to different productions.

Calculating additional credit for relevant VFX expenditure

As the name suggests, additional credit for VFX expenditure is given on top of any ‘regular� expenditure credit(s) already claimed in respect of relevant VFX expenditure in accordance with section 1179CA CTA 2009. These ‘regular� credits are referred to in this guidance as Chapter 3 credits. The same term is used in the legislation.

To calculate the additional credit for relevant VFX expenditure, it is necessary to deduct any Chapter 3 credits previously claimed on the same expenditure. In post-completion periods, it is also necessary to deduct any additional VFX credit that has already been claimed.

Therefore, additional credit for relevant VFX expenditure equals:

Relevant VFX expenditure to date, multiplied by 39%

Minus

• the adjusted VFX portion of previously claimed Chapter 3 credits, and
• any additional VFX credit claimed in previous periods

Calculating the adjusted VFX portion

The adjusted VFX portion of previously claimed Chapter 3 credits is calculated using a series of steps.

All production companies must follow steps 1 to 3. Depending on the result of step 3, they should then either proceed to step 4 or skip to step 5. Companies which skip to step 5 may also need to follow step 6, depending on the result of step 5. This is explained in detail in the following sections.

The aim of the steps is to determine the extent to which relevant VFX expenditure on a production has already been relieved by Chapter 3 credits, which use the calculation in section 1179CA(1) CTA 2009. This depends on whether the 80% cap applied to the production and, if so, the extent to which relevant VFX expenditure was excluded by the cap. The steps assume that relevant VFX expenditure is always the first expenditure to be excluded by the cap, regardless of when it was incurred or the pattern of UK vs non-UK expenditure.

Step 1

Identify the amount of relevant global expenditure that is incurred in the AVEC period and is UK expenditure.

The usual definitions of relevant global expenditure and UK expenditure apply. Relevant global expenditure is expenditure that is brought into account as part of the separate production trade, is core expenditure and is not excluded expenditure. UK expenditure is expenditure on goods and services that are used or consumed in the UK. For more details, see CREC051000 and CREC054000.

Companies need to establish how much relevant global expenditure they have incurred in the AVEC period, and then how much of that amount is UK expenditure.

The AVEC period covers all the accounting periods of the separate production trade to which the AVEC rules in Part 14A CTA 2009 apply (as opposed to regular Corporation Tax treatment or the rules for one of the predecessor tax reliefs, such as Film Tax Relief). It includes the claim period: the accounting period for which the company is claiming additional credit.

For productions whose separate trade commenced on or after 1 January 2024 and have only ever been subject to AVEC claims, the AVEC period should cover the whole lifetime of the production. For productions which have been transferred from one of the predecessor tax reliefs to AVEC, the AVEC period begins with the first accounting period after the transition. If a production is transferred partway through an accounting period, the AVEC period begins with the first notional period to which the AVEC rules apply (see CREC092100).

Step 2

Identify how much of the result of step 1 is relevant VFX expenditure. Remember that only VFX costs incurred from 1 January 2025 can be relevant VFX expenditure, even if the AVEC period begins before that date.

Relevant VFX expenditure is expenditure on relevant VFX work that is carried out in the UK. It must also meet the definitions of relevant global expenditure and UK expenditure. Please see CREC061420 for more details.

Step 3

Determine whether the 80% cap applied to the production at step 3 of the Chapter 3 credit calculation in section 1179CA(1) CTA 2009, for the most recent accounting period in which the company has claimed a Chapter 3 credit. This may be the same period for which the company is claiming additional credit.

The 80% cap compares UK relevant global expenditure with 80% of total relevant global expenditure. If UK relevant global expenditure is more than 80% of total relevant global expenditure, then it is reduced by the amount of the difference between the two figures.

If the 80% cap did apply, identify the amount of the reduction made by the cap.

If there was no reduction, i.e. the reduction was nil, go to step 4. Otherwise, skip to step 5.

Step 4

Purpose

This step calculates the adjusted VFX portion in cases where the 80% cap did not apply to the production for the most recent period in which the production company claimed a Chapter 3 credit on it.

In such cases, total Chapter 3 credits are given based on all UK relevant global expenditure incurred in AVEC period � none is excluded by the cap. Therefore, to determine the amount of Chapter 3 credit(s) that relates to relevant VFX expenditure, it is necessary to look at the proportion of UK expenditure from the AVEC period (calculated at step 1) that is relevant VFX expenditure (calculated at step 2), and apply that proportion to total Chapter 3 credits.

Application

Divide the result of step 2 of this calculation by the result of step 1, to find the proportion of UK expenditure in the AVEC period that is relevant VFX expenditure.

Next, multiply that proportion by the sum of Chapter 3 credits claimed on the production. The sum of Chapter 3 credits is the combined total of all Chapter 3 credits claimed on the production for accounting periods up to and including the period of the additional credit claim.

The result is the adjusted VFX proportion of previously claimed Chapter 3 credits. There is no need to continue to steps 5 and 6.

Step 5

Purpose

Steps 5 and 6 apply in cases where the 80% cap applied to the production for the most recent period in which the production company claimed a Chapter 3 credit on it.

The purpose of step 5 is to determine how much of relevant VFX expenditure was not excluded from Chapter 3 credit by the 80% cap. It assumes that relevant VFX expenditure is always first to be excluded by the cap, ahead of other UK expenditure. The amount of relevant VFX expenditure that was notexcluded is therefore found by subtracting the reduction made by the 80% cap (calculated at step 3), from the total amount of relevant VFX expenditure (calculated at step 2).

If all the relevant VFX expenditure was excluded by the cap, then the adjusted VFX portion is zero, because no relevant VFX expenditure has received Chapter 3 credit. If only some is excluded, further calculation is needed at step 6.

Application

Subtract the result of step 3 of this calculation from the result of step 2.

If the result is zero or negative, the adjusted VFX portion is zero. There is no need to continue to step 6. If the result is above zero, go to step 6.

Step 6

Purpose

This step calculates the adjusted VFX portion in cases where some relevant VFX expenditure was excluded by the 80% cap and some was not. The excluded amount has not received any Chapter 3 credit, so the adjusted VFX portion in relation to that amount is zero. However, the amount that was not excluded was part of qualifying expenditure from which Chapter 3 credit was calculated, and so it has received relief at a relevant percentage of 34%. Therefore, to find the amount of Chapter 3 credit that relates to relevant VFX expenditure, it is necessary to multiply the amount of VFX expenditure not excluded by the cap (calculated at step 5) by 34%.

Application

Multiply the result of step 5 by 0.34. The result is the adjusted VFX portion.