Understanding Entertainment Tax Credits: A Guide for Creatives
Creative & Entertainment Finance
Dec 2, 2025
AVEC turns UK film & TV tax relief into taxable income — plan cashflow, reporting and compliance early to protect profits and investor confidence.
Entertainment tax credits aren’t just a bonus - they’re a financial tool that can change how you fund, plan, and deliver your projects. The UK’s Audio-Visual Expenditure Credit (AVEC), introduced in January 2024, has reshaped how production companies approach cashflow, profitability, and growth. Unlike the old tax relief schemes, AVEC is treated as income, directly impacting your financial reports and investor relations.
Here’s what you need to know:
AVEC rates: 34% for films and high-end TV; 39% for animation and children’s TV.
Timing matters: Claims are processed via Corporation Tax returns and can take months - so plan your cashflow carefully.
Eligibility: At least 10% of qualifying spend must be UK-based, and productions must pass the British Film Institute’s test.
AVEC isn’t just about claiming tax relief; it’s about integrating it into your financial strategy. Done right, it can stabilise cashflow, fund production gaps, and build confidence with lenders and investors. But without proper planning, delays or missed criteria can disrupt your entire project. Let’s break down how to use AVEC to strengthen your financial position.
Master Series: What's Changing in UK Production Incentives
How the Audio-Visual Expenditure Credit (AVEC) Works
AVEC marks a shift in the way the UK government supports film and television production. Instead of reducing taxable profit through a deduction, AVEC operates as an expenditure credit - a direct offset against your Corporation Tax liability, calculated based on qualifying production costs. This change has a notable impact on cashflow planning and financial forecasting.
One of AVEC's key features is its ability to provide refunds when the credit exceeds your tax liability. This makes it particularly useful for productions that are loss-making in their early stages, as they can still receive cash through the credit.
AVEC replaces the previous Film, High-End Television, Animation, and Children's Television Tax Relief schemes. Under the old system, relief was applied "below the line" as an enhanced deduction, reducing taxable profit without being recognised as income. AVEC, on the other hand, is recorded as income in your profit and loss account. This can significantly alter how your financial performance is perceived by investors, lenders, and other stakeholders. For example, a production that might have shown a loss under the old system could now report a profit once the AVEC credit is accounted for. This change can influence banking covenants and investor confidence, making AVEC a critical factor in financial planning.
Core Features of AVEC
AVEC applies to four types of production, each with its own credit rate:
Films and high-end television programmes: 34% of qualifying expenditure
Animation programmes and children's television programmes: 39% of qualifying expenditure
High-end television is defined as drama with production costs of at least £1 million per hour of slot length, while children's television must target audiences aged 15 or under.
The credit is calculated based on qualifying expenditure, which typically includes costs directly tied to production activities. However, the actual benefit depends on your Corporation Tax liability. For profitable companies, the gross rate applies first, reducing the tax bill. If the credit exceeds the tax owed, HMRC refunds the surplus at the net rate - 25.5% for films and high-end television, and 29.25% for animation and children's programmes.
For companies operating at breakeven or with multiple projects generating taxable profit, AVEC offers maximum value. However, for consistently loss-making companies, the net rate is more relevant.
Claims for the credit are made through your Company Tax Return (CT600), aligning the process with your Corporation Tax compliance cycle. Timing is crucial, as you cannot access the credit until your return is filed. Given HMRC’s processing times, which can take several months, productions with tight cashflow need to plan carefully around the submission deadline - typically 12 months after the end of the accounting period.
Qualifying Costs and Core Expenditure
Only core costs are eligible for inclusion in your AVEC claim. These include:
Cast and crew expenses
Set construction and location fees
Post-production costs
Excluded costs include marketing, distribution, finance fees, and general overheads. Accurate cost categorisation during production is essential to ensure compliance, and we'll cover this in more detail later.
Implementation Timeline and Regulatory Changes
AVEC officially applies to accounting periods starting on or after 1 January 2024. For productions that span the transition date - where the accounting period begins before 1 January 2024 but ends after - companies could choose to adopt AVEC early or continue using the old relief system until their next accounting period. This flexibility allowed businesses to select the most advantageous option for their situation.
From 1 April 2025, AVEC became the default for all new claims. However, companies with accounting periods starting before this date could still use the old reliefs. By 1 April 2027, the previous reliefs will be fully withdrawn, and AVEC will become mandatory for all qualifying productions. This phased approach gives businesses time to update accounting systems, financial models, and train teams on the new requirements.
For productions currently in development or pre-production, the timeline is critical. If your accounting period starts after 1 April 2025, AVEC rules will already apply. Productions spanning multiple years should incorporate AVEC rates and recognition principles from the outset to avoid complications with revenue recognition and deferred income.
Financial Reporting and Compliance
Under AVEC, the credit is recorded as other operating income in the profit and loss account, making the benefit more transparent. This visibility can be advantageous when seeking finance or reporting to stakeholders, but it also means higher reported profits. For companies with banking covenants or investor agreements tied to profitability thresholds, this could have unintended consequences.
The regulatory changes also bring stricter documentation requirements. HMRC requires detailed cost breakdowns, contemporaneous records, and clear evidence that expenses qualify as core costs. Additionally, productions must pass the British Film Institute's (BFI) cultural test to qualify as British. This certification process, which can take several weeks, is a prerequisite for claiming AVEC. Failing to account for this timeline could delay access to the credit, disrupting cashflow and production schedules.
These features and timelines make AVEC a cornerstone of financial planning for qualifying productions. The next step involves ensuring eligibility, which includes meeting specific criteria and successfully passing the BFI's cultural test.
Qualifying for AVEC: Eligibility and Cultural Certification
Now that we've outlined AVEC's structure, let’s dive into the specifics of eligibility and the cultural certification process.
Accessing AVEC requires productions to meet strict financial, production, and cultural certification standards. These rules are designed to support UK-based productions while also encouraging international collaboration. Planning ahead is crucial - missing any requirement could disqualify your claim.
The eligibility process has two main components. First, your production must fit into one of the qualifying categories by meeting specific expenditure thresholds. Second, it must pass the British Film Institute's cultural test, which is particularly relevant for projects involving international teams or cross-border financing.
Production Categories and Minimum Expenditure Requirements
AVEC applies to several production types, each with its own set of rules:
Films: This category includes theatrical releases, direct-to-streaming features, and long-form narratives. While there’s no fixed minimum expenditure in absolute terms, films must allocate at least 10% of their qualifying expenditure to UK-based goods or services.
High-end television: This includes dramas with an average core expenditure of at least £1 million per broadcast hour. The calculation is based on the slot length, not the running time. For instance, a 60-minute drama assigned a 90-minute slot must show core costs exceeding £1.5 million. Each episode must have a slot length of more than 20 minutes, and shorter episodes cannot be combined to meet this threshold.
Animation programmes: At least 51% of the total core expenditure must go toward animation production activities, alongside meeting the 10% UK qualifying expenditure requirement.
Children’s television programmes: These are aimed at audiences aged 15 or under. While there’s no per-hour minimum expenditure requirement, productions must still meet the 10% UK qualifying expenditure rule.
Across all categories, at least 10% of core expenditure must go toward UK-based goods or services. This includes costs in pre-production, principal photography, visual effects, post-production, and payments to key creative personnel. Meeting these criteria ensures your AVEC claim aligns with accurate cashflow and profit projections.
The framework is flexible. For example, productions filmed abroad can still qualify if a significant portion of post-production or prorated neutral costs - such as fees for senior producers, writers, or directors - take place in the UK.
However, certain costs are excluded from core expenditure. These include bond fees, financing charges, option payments for book rights, development expenses, entertainment, publicity, errors and omissions insurance, and capital expenditure. Properly categorising costs is essential to avoid claim rejections or potential HMRC enquiries.
The British Film Institute Cultural Test
In addition to meeting financial thresholds, productions must demonstrate a strong connection to the UK through the British Film Institute’s points-based cultural test. This test evaluates several key factors:
Cultural content: Does the production take place in the UK, feature British characters, or tell a distinctly British story?
Cultural contribution: Does it highlight British creativity, heritage, or diversity?
Location of production activities: Are pre-production, principal photography, visual effects, and post-production carried out in the UK?
Involvement of cultural practitioners: This considers the nationality or residency of key personnel such as directors, writers, producers, composers, and lead actors.
To pass, your production must achieve the minimum score set by the BFI. This requires careful planning and detailed documentation to show where specific activities occur. Since the review process can take several weeks, it’s important to factor this timeline into your production schedule.
The cultural test is completed at the application stage, so it’s wise to select key personnel and plan activities within the UK early on. Even if your production passes the test, it still needs to meet the 10% UK expenditure threshold to qualify for AVEC. This dual requirement highlights the need to align both creative and financial aspects of your production with UK criteria, integrating these considerations into your overall financial planning from the start.
Calculating Your Tax Credit
Once you’ve secured AVEC qualification and the necessary certification, the next step is calculating your tax credit. This involves pinpointing UK core costs and applying the correct relief rate based on your production type. The process hinges on accurately identifying which expenditures qualify as core, as errors here can lead to HMRC enquiries or even reductions in your claim.
Here’s a closer look at what counts as core expenditure, what doesn’t, and how tax credit calculations differ across production types.
Core Costs Versus Excluded Costs
Core expenditure refers to the direct costs involved in creating your programme. These include activities across all stages of production:
Pre-production: Location scouting, script refinement during production, and casting.
Principal photography: Crew salaries, equipment hire, set construction, costume and make-up, and payments to on-screen talent.
Post-production: Editing, sound design, colour grading, music composition, and visual effects.
Excluded costs, on the other hand, are those not directly tied to producing the programme. These include:
Development expenses incurred before formal production begins.
Financing costs, such as interest charges, arrangement fees, and legal expenses related to funding.
Marketing, distribution, and publicity costs.
Capital expenditure, like purchasing equipment or constructing permanent sets (though hiring or leasing these items is eligible).
It’s also important to note that only UK-incurred expenditure qualifies. Any costs incurred overseas won’t contribute towards meeting the eligibility threshold.
To maximise your claim, establish a system for detailed record-keeping right from the start. Structuring your spending early on ensures no opportunities are missed, while finalising expenditure categorisation too late in the process can lead to inefficiencies or even challenges from HMRC.
Calculation Examples by Production Type
Once you’ve identified core and excluded costs, the next step is applying the appropriate relief rate. Here are examples of how this works across different types of productions:
Children’s television series: If a significant portion of your core expenditure qualifies as UK-based, the relief rate for children’s programming can be applied.
Independent films: There may be a cap on the amount of qualifying UK expenditure eligible for the higher relief rate. In these cases, a tiered system is often used, with one rate applying up to a certain threshold and a lower rate for spending beyond that point.
High-end television dramas: These projects must meet a minimum production expenditure threshold to qualify for the higher relief rate on UK costs.
Animation programmes: Tracking how much of the core expenditure relates specifically to animation is critical. Productions meeting the required proportion can access a higher relief rate, while those that fall short may need to be assessed under a different category with alternative conditions.
Incorporating these calculations into your cashflow forecasts can help you make informed financial decisions throughout the production process.
Comprehensive documentation is key. Keep detailed cost reports, contracts, and invoices on hand, as HMRC scrutinises claims closely. Any discrepancies or unsupported expenses could result in a reduced or rejected claim.
Finally, timing your claim is crucial, particularly if your production spans multiple accounting periods. Deciding when to include the credit in your company tax return can significantly impact cashflow. Integrating this into your initial budget planning can help avoid disruptions during post-production.
Documentation and Submission Requirements
When filing AVEC claims, precision and thoroughness matter. Missing or incomplete documentation can cause delays or even reduce the credit you’re entitled to.
Required Documents and Record-Keeping
Every AVEC claim must be backed by clear evidence proving your production qualifies and detailing its expenditure. A key requirement is the British cultural certificate issued by the British Film Institute (BFI). If you only have an interim certificate during production, ensure the final, valid certificate is submitted once the project is complete.
You’ll also need to provide detailed cost statements that clearly separate UK and non-UK expenditure. HMRC expects costs to be categorised and broken down accordingly. If there are transactions involving connected parties - such as payments to related companies or individuals - these must be disclosed separately.
A signed accountant’s report is another essential document. To avoid delays, keep thorough records of all UK expenditure, including invoices and contracts. These will be crucial if HMRC requests further details. For additional guidance, HMRC offers tools like the Audio-visual Expenditure Credit stencil (AVEC) and the Expenditure Credit Redemption stencil to help structure your cost breakdowns.
Once all records are in order, you can proceed to file your claim via the Company Tax Return.
Submitting Claims Through the Company Tax Return
After verifying your documentation, submit your AVEC claim through the Company Tax Return (CT600). Alongside the CT600, you’ll need to complete and file an additional online information form. This form provides detailed production and expenditure data to support your claim and must align perfectly with the figures in your CT600.
It’s worth noting a change coming in April 2025: the CT600P creative industries supplementary page will no longer be required. Claims can be submitted, amended, or withdrawn up to two years after the end of the relevant accounting period.
Be sure to retain copies of all submissions and supporting documents for your records. This ensures you’re prepared for any follow-up queries from HMRC.
Planning to Maximise Tax Credit Value
Strategic planning is key to ensuring you get the most out of your AVEC benefits. While meeting HMRC's documentation requirements is essential, taking a thoughtful approach to your submission can make all the difference. A common mistake that can cause frustrating delays is submitting incorrect or incomplete documents.
Avoiding Common Errors and Compliance Issues
One critical error to watch out for: never submit the CT600 before the Additional Information Form (AIF). Doing so will lead to your claim being immediately rejected. To avoid this, ensure the AIF is completed accurately and submitted alongside your CT600. This simple step can save you time and prevent unnecessary setbacks.
Conclusion
Entertainment tax credits shouldn’t be an afterthought - they need to be a core part of your financial setup. When treated as a consistent revenue stream, AVEC can transform how you manage cashflow, plan budgets, and drive growth.
The real difference between those who fully leverage AVEC and those who don’t comes down to integration. Tax credits should shape production budgets from the very beginning, guide cashflow forecasts, and influence project structures. By embedding AVEC into your broader financial strategy, you can align production, finance, and tax functions seamlessly.
As regulations around AVEC continue to shift, staying compliant is non-negotiable. This means keeping meticulous records, understanding how production spending impacts your claims, and ensuring submissions are accurate and timely. A strong compliance framework is essential to maximising your returns.
AVEC has the power to stabilise cashflow, fund creative projects, and encourage bold decision-making. But this potential is only realised when tax credit management is woven into your financial strategy - not left as a last-minute task.
To make the most of AVEC, your financial systems should connect production budgets directly to tax credit forecasts, model cashflow scenarios that account for credit timing, and ensure compliance without delays. By adopting a strategic, CFO-level approach, you can turn tax credits into a real advantage for your business.
FAQs
What is the Audio-Visual Expenditure Credit (AVEC) and how does it affect a production company’s finances?
The Audio-Visual Expenditure Credit (AVEC) is treated as taxable income when calculating the profits of a production company’s distinct trade for tax purposes. This scheme is aimed at supporting qualifying audio-visual productions and works as a relief to offset a company’s corporation tax liabilities.
By easing the tax burden, AVEC can help production companies better manage their cash flow and plan their finances more effectively. That said, proper accounting for this credit in financial reporting is essential to stay compliant with HMRC rules and to sidestep any unforeseen tax issues.
What does a production need to do to qualify for the Audio-Visual Expenditure Credit (AVEC), and how can businesses stay compliant?
Productions aiming to qualify for the Audio-Visual Expenditure Credit (AVEC) must meet specific criteria. First, they need to be certified as British, either by passing the cultural test or as an official co-production. Additionally, at least 10% of the total core expenditure must take place in the UK. The production must also be managed by a UK Limited Company, registered before filming begins.
For films, there must be a clear intention for theatrical release. High-End TV productions, meanwhile, must have a minimum core expenditure of £1,000,000 per broadcast hour. Animated productions face a slightly different requirement, with at least 51% of their production costs needing to be dedicated to animation.
To meet these requirements, it’s essential to set up a UK-based production company to oversee all activity within the country and ensure the necessary expenditure thresholds are met. Applying for British certification - whether through the cultural test or co-production route - is another key step. By staying organised and following these rules, productions can fully benefit from AVEC while ensuring they remain compliant with all regulations.
How can production companies manage cash flow and financial planning to make the most of AVEC while avoiding disruptions?
To make the most of AVEC, production companies should weave it into their cash flow planning. A key step is ensuring they meet the minimum UK expenditure threshold of 10% on core production costs. This not only secures eligibility but also helps in budgeting effectively. Interim claims can also play a crucial role, offering a financial cushion to manage post-production expenses and keep the project on track during critical phases.
Equally important is confirming eligibility through the cultural test or by obtaining co-production status. By carefully timing claims and staying compliant with all requirements, companies can avoid unnecessary delays or complications, ensuring they reap the full financial benefits AVEC has to offer.
