The five audio visual (AV) reliefs under discussion in HM Treasury’s consultation are:
- Film tax relief (FTR)
- Animation tax relief (ATR)
- High-end TV tax relief (HETV tax relief)
- Children’s TV tax relief (CTR)
- Video games tax relief (VGTR).
ICAEW’s response, which can be found at ICAEW REP 11/23, stressed that any new legislation should simplify and standardise the existing rules. It is important that the rules are clear and easy to apply. Technology in the AV sector is constantly evolving, and it is impossible to predict what new methods of AV entertainment might emerge over time. Any new rules must not be unduly complex and capable of being applied to new areas of technology as and when they develop.
There were no objections from members to changing the way relief is given to a credit scheme similar to the research and development expenditure credit (RDEC). However, this was clearly on the basis that the changes do not reduce the quantum of relief.
There is concern that applying the new rules from April 2024 might be overambitious and not provide sufficient time for consultation and guidance on the new mechanism for relief, particularly for small and medium sized entities in the sector. Many will have little awareness of how a credit scheme would work and education will be essential. Larger businesses, within the quarterly instalment payment regime would need to be advised of changes in plenty of time so they can adjust their corporation tax payments.
The response also highlighted that commencement provisions for the new rules would need to be considered. For example, in the context of video games, there might be monthly updates and new downloads to existing games and the legislation would need to be clear on how the new rules would apply in this sort of situation.
There was a consensus that the removal of European expenditure from the qualifying costs of VGTR would negatively affect production activities. This is because there is a skill shortage in the UK and it is very common for businesses to use overseas resources to fulfil production requirements in the video games technology sector. Some members also were concerned that a requirement for expenditure to be ‘used or consumed in the UK’ might result in video games production being moved overseas. Some territories have their own version of this tax relief, which is more favourable than is being proposed in the UK. While the policy intent clearly appears to be to encourage production in the UK, it might actually have the opposite effect.
Many members suggested that, given the £1m cap on subcontracted expenditure has been in place since 2014/15, it would be reasonable to raise this figure for example in line with inflation. However, members also considered that a cap would appear unnecessary if only subcontracted UK expenditure was to be allowable in any event.
Members felt that scrapping the 80% cap on qualifying expenditure would reduce the administrative burden on claimants as there would be less need to track the accumulated costs.
ICAEW’s Tax Faculty will continue to work with members and HMT on policy developments in this area.
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