Much of the film and television made in Britain is financed with the help of a government credit that pays back a share of what a production spends in the UK. This article explains how that credit, the Audio-Visual Expenditure Credit (AVEC), works, which projects qualify, and what the headline percentages really mean.
The details matter beyond the industry. They help explain why productions choose London soundstages over cheaper locations, and why a single line in a budget, such as visual effects, can change a studio’s math.
What is the Audio-Visual Expenditure Credit?
According to HMRC’s Creative Industries Expenditure Credit Manual on GOV.UK, AVEC is one of two new expenditure credits for the creative industries, introduced by the Finance Act 2024 as Part 14A of the Corporation Tax Act 2009. After a transition period, it replaces Film Tax Relief, High-End Television Tax Relief, Animation Tax Relief and Children’s TV Tax Relief. The second credit covers video games.
The basic idea is simple. A production company claims “a percentage of qualifying expenditure,” and the credit is set against its tax bill or paid out in cash. Only the production company for a qualifying production can claim it.
The change from the older reliefs is one of design as well as name. Under the earlier system, relief reduced taxable profits. An expenditure credit is calculated on spending and treated as a credit, which is the reason the manual describes steps for applying it against tax liabilities before any payment.
Which films and TV shows qualify?
Not every production is eligible. The manual sets out separate tests for films and television.
Films must be:
- a British film,
- intended for theatrical release, and
- have at least 10% of core expenditure incurred on goods and services used or consumed in the United Kingdom.
Television programmes must be a British programme intended for broadcast, with at least 10% of core expenditure in the UK. They must also be a drama, comedy, documentary, animation or children’s programme.
Dramas, comedies and documentaries face an extra spending test: average core expenditure of at least £1 million per hour of slot length, and a slot length greater than 20 minutes per episode. That floor is meant to direct the credit toward higher-budget programming rather than low-cost formats.
Core expenditure, as the manual defines it, covers pre-production, principal photography and post-production for a film or TV show. Spending that qualifies under research-and-development schemes is excluded, and has to be claimed there instead.
How much is the credit worth?
The manual lists the “relevant percentage” for each type of production. As of the page’s last update on 9 April 2026, according to HMRC:
| Production type | Relevant percentage |
|---|---|
| Other films | 34% |
| High-end TV programmes | 34% |
| Video games | 34% |
| Animated films | 39% |
| Animated TV programmes | 39% |
| Children’s TV programmes | 39% |
| Independent (certified low-budget) films | 53% |
These are percentages of qualifying spending, not of the final value to the company. Before payment, HMRC applies a notional tax charge at the main Corporation Tax rate, so the cash a company ends up with is lower than the headline figure suggests. The manual does not quantify that charge on the page reviewed here, so any estimate of the net value needs the current tax rate and the company’s own position.
What does the 80% cap do?
Qualifying spending is not simply everything spent in Britain. HMRC’s manual on the visual effects credit describes a cap on relevant global expenditure: qualifying expenditure is the lower of UK expenditure to date and 80% of total relevant global expenditure to date.
That rule limits how much of a budget can be spent in the UK and still count in full. It means a production that does nearly all its work here does not receive credit on every pound.
Illustrative arithmetic for a regular film
Take a hypothetical film that spends £25 million in total, of which £22 million is UK spending:
- 80% of £25 million is £20 million.
- The lower of £22 million and £20 million is £20 million.
- At the 34% rate, the credit is £20 million × 34% = £6.8 million.
The £2 million of UK spending above the cap earns nothing. A film with a lower UK share, say £18 million in the UK, would be limited by its actual UK spending instead, because £18 million is below the £20 million cap.
Why do independent films get 53%?
The highest rate is aimed at smaller British pictures. A film qualifies as an independent film, formally a certified low-budget film, only if it meets all the standard qualifying criteria and holds a low-budget certificate from the British Film Institute. The BFI issues that if the film passes the cultural test and meets two further conditions, according to HMRC:
- A budget condition: total core expenditure of £23.5 million or less.
- A creative connection: a UK writer or director, or official co-production status.
The film does not have to come from an independent studio, and animated films can qualify. The 53% rate applies only to expenditure incurred on or after 1 April 2024, and only to films whose principal photography began on or after that date. Claims could be made from 1 April 2025, and applications for the low-budget certificate opened on 30 October 2024.
There is a ceiling as well. For each independent film, relevant global expenditure counted in the calculation is capped at £15 million. A company can spend more, but only £15 million counts. As an upper bound, £15 million at 53% is £7.95 million of credit before any other limits.
HMRC illustrates the ceiling with a company that spends £12 million in one period (£8 million in the UK, £4 million abroad) and a further £5 million, all in the UK, in the next. Total spending is £17 million, but only £15 million counts. After deducting the £2 million of non-UK spending that falls inside the cap, UK spending to date is £13 million.
How does the visual effects uplift work?
High-end television and most films, excluding independent and animated films, can claim extra credit for UK visual effects spending. HMRC says relevant VFX expenditure is relieved at an uplifted 39%, and that it is exempt from the 80% cap.
Three conditions apply. The spending must be core expenditure that is not excluded, it must be UK expenditure, and it must be for VFX work carried out in the UK. Only VFX costs incurred from 1 January 2025 can count.
HMRC’s worked example
The manual walks through a film with total spending of £20 million: £2 million outside the UK, £16 million of UK spending excluding VFX, and £2 million of UK VFX.
- Standard credit: £16 million × 34% = £5.44 million.
- Additional VFX credit: £2 million × 39% = £0.78 million.
- Total AVEC: £6.22 million.
When total spending later rises to £23 million, with £3 million of UK VFX, the cap bites. The 80% figure is £18.4 million, so £2.4 million is left once the £16 million already relieved is deducted. The standard credit on that is £2.4 million × 34% = £816,000. The additional VFX credit becomes £3 million × 39% = £1.17 million, less £816,000, or £354,000. That is a fall of £426,000 against the earlier £780,000, a “negative amount” that must be deducted. The overall AVEC due rises to £6.61 million.
The lesson is that the credit is recalculated as a production’s spending changes, and a later shift can reduce an earlier VFX amount even while the total grows.
Where does the money go?
Once the credit is calculated, the company does not simply receive a check. The manual sets out an order in which the total credit is applied:
- It first discharges the company’s Corporation Tax for the current period, after a notional tax charge is withheld.
- Remaining credit goes toward Corporation Tax for other accounting periods.
- The company may optionally surrender some of it to a group member.
- Any other outstanding HMRC liabilities are paid next.
- Whatever remains is paid to the company.
The company cannot transfer the tax liability or the notional tax charge to another company, and every step except the optional group surrender must be met by the production company itself.
What does it mean for audiences?
Tax policy is a quiet shaper of what appears on screen. A credit that rewards UK spending gives producers a reason to film, build and finish productions in Britain, and a higher rate for low-budget British films nudges backers toward smaller domestic projects.
For viewers, the connection is indirect but real. Streaming services are commissioning across many countries, as covered in how the streaming era is changing again, and local incentives are among the factors that decide where a show is made. Distribution still matters too. The renewed interest in discs and cartridges described in the return of physical media is a reminder that a production’s value is not limited to its first broadcast.
The rate is only the starting point
A 34% credit does not mean a third of a film’s budget comes back. Spending must be British, certified, capped at 80% of global costs and reduced by a notional tax charge, and the independent and VFX variations each add their own limits. Anyone reading a headline rate should ask what base it is applied to, and what comes off before the money arrives.
This article is general information about entertainment industry policy and is not tax, legal or financial advice.
Sources: HMRC; GOV.UK
