How to Calculate Creative Tax Reliefs

Navigating the world of tax reliefs can be daunting—especially for those working in the creative industries. Whether you're producing films, developing video games, or working in animation, or putting on a show, the UK government offers a range of tax incentives designed to support and stimulate creative projects.

However, understanding how to calculate these reliefs accurately is crucial to maximising your claim and staying compliant. In this guide, we'll break down the essentials of calculating creative tax reliefs, demystify the jargon, and help you make the most of the financial benefits available to your sector.

What creative tax reliefs are available?

The British government offers tax incentives for the following types of productions:

• Films
• Animations
• High-End Television Programmes
• Children’s Television Programmes
• Video Games
• Museum & Gallery Exhibitions
• Theatre
• Orchestra

There are specific requirements for each scheme that differ across the range.

The first five in this list are being phased out and replaced by the Audio-Visual Expenditure Credit (for the first four) and the Video Games Expenditure Credit (as you may have guessed, for video games).

With the arrival of the AVEC and VGEC schemes, HMRC announced a transitional period to phase out the long-standing tax relief schemes without severely impacting any game or production currently claiming the existing relief.

Companies may only opt into AVEC/VGEC for accounting periods ending on or after 1^st January 2024. They can only claim for expenditure incurred on or after this date, too.

However, for those still looking to claim the old tax relief schemes, the closure date depends on your production timeline:

• Games/productions that begin their production phase before 1^st April 2025 can claim the relevant tax relief scheme until 1^st April 2027.
• Games/productions that begin their production phase on or after 1^st April 2025 must claim through AVEC or VGEC from this date.

The AVEC and VGEC schemes are calculated in a different way to the previous tax reliefs, as they are treated as above-the-line income.

How are creative tax reliefs calculated?

Creative tax reliefs are claimed as part of your company’s Corporation Tax Return (CT600), which you file with HMRC. You should claim the cumulative costs of the production (i.e., the costs of the trade, not of the period).

For each accounting period you claim for, you should calculate the total costs of the production since the beginning of the project, then subtract the costs already claimed to find the amount you can claim for within that period.

Each production must be treated as a separate trade for tax purposes, so you’ll need to create a profit and loss account for each production to report to HMRC.

The amount you can claim depends on where the expenditure occurred, your accounting period and your production type; you should check the scheme’s requirements carefully to ensure that you are not over- or under-claiming.

You will claim an additional deduction to reduce your profits or to increase a loss. This will reduce the amount of Corporation Tax you will need to pay or give you an opportunity to claim a cash credit.

The Additional Deduction

The additional deduction is a notional extra deduction beyond the usual 100% deduction for all costs. Essentially, you can deduct your eligible costs from your profits twice, once in the usual preparation of a profit and loss and again when you calculate your creative tax relief. The additional deduction does not affect your profitability on your statutory accounts.

The amount you can claim depends on the eligible costs of your scheme and your accounting period. In most cases, you can claim the lower of:

• 80% of the total core costs (usually, the costs for the production up to the point of release to the public)
• the amount of eligible core costs

Eligible core costs are either European or UK expenditure, depending on your accounting period. This changes per scheme, so make sure you have the correct details for your production.

Companies whose core costs are over 80% eligible must cap their costs. Companies whose core costs are under 80% eligible can claim the whole amount.

The additional deduction allows companies to reduce their taxable profits or increase their losses, which will either reduce the Corporation Tax due (if a profit remains) or result in a cash credit (by surrendering any losses).

You’ll need to provide these details on your Additional Information Form, so it’s important to get it right!

Profit-making companies

Profit-making companies can receive a reduction in their Corporation Tax bill by claiming an additional deduction of the qualifying expenditure.

For example:

Company A is a UK production company with an accounting period beginning on 1 April 2025.

It spends £200k making a production, of which £150k is core expenditure, all of which is from the UK and, therefore, eligible. The company receives an income of £400k from the production, delivering a profit of £200k, which is taxed at the main Corporation Tax rate of 25%. The production was completed in a single account period.

Since all the core expenditure is UK expenditure, the company must cap its costs at 80% (as this is the lower of 80% of costs or the UK expenditure). These rules depend on your accounting period and your scheme.

Therefore, Company A can claim an additional deduction of £120k (80% of the core expenditure). This reduces the company’s taxable profits and, thus, the company’s Corporation Tax liability.

Loss-making companies

For companies that started with a loss, or with a small profit that was cancelled out by the additional deduction, can surrender all or part of their loss for a cash credit from HMRC.

The rate that the loss is surrendered at will depend on the date of the expenditure and, in some cases, if the production is touring.

The amount of the surrenderable loss is the lesser of:

• the available loss of the separate trade for the accounting period (i.e., losses from that period and any brought forward)
• the available qualifying expenditure for that period (i.e., the qualifying expenditure to date, minus any expenditure already claimed in any previous periods)

For example:

Company B is a UK production company with an accounting period beginning on 1 April 2025 (therefore, under the new rules for UK expenditure and the new rates for surrendering losses).

It spends £200k making a non-touring orchestral production, of which £150k is UK-based core expenditure. The company receives an income of £100k from the production, delivering a loss of £100k, which is taxed at the main Corporation Tax rate of 25%. The production was completed in a single account period.

Since all the core expenditure is UK expenditure, the production company must cap its costs at 80% (as this is the lower of 80% of costs or the UK expenditure).

Therefore, Company B can claim an additional deduction of £120k (80% of the UK-based core expenditure). This results in the company making a loss of £220k.

The maximum losses that can be surrendered is the lower of:

• Available losses (£220k)
• Qualifying expenditure (£120k)

Therefore, the company can surrender its qualifying expenditure (which is the same amount as the additional deduction) for a cash credit at a rate of 45% (the rate that applies to non-touring orchestral productions from 1 April 2025).

Claiming for multiple accounting periods

As mentioned, the creative tax relief schemes are claimed on the cumulative costs of a production.

Each year, you should add all the costs of a production from the start and subtract any costs that have already been claimed. The caps on eligible expenditure apply to the total costs of the production.

For example:

Company C is a UK production company with an accounting period beginning on 1 January 2025 (therefore, it can only claim for UK costs).

It produces a qualifying production with a total core expenditure of £1m. 75% of the costs are incurred within the UK, and 25% are outside the UK. The production is developed over 3 years (1 January 2025 to 31 December 2028).

The profile of core expenditure over the 3 years is as follows:

In the first period, because all core expenditure is within the UK, the tax relief is calculated based on 80% of the total core expenditure, or £140k (= 80% x £175k).

At the end of the second period, the cumulative core expenditure to date was £400k. As the cumulative UK core expenditure exceeds 80% of the cumulative core expenditure, creative tax relief is based on 80% of the total core expenditure incurred to date (80% x £400k = £320k).

However, £140k of the core costs were claimed in the previous accounting period. This leaves the company with £180k (=£320k - £140k) to claim in the second period.

By the end of the third period, the cumulative core expenditure was £500k, of which £375k was the cumulative UK core expenditure. Because the UK core costs are less than 80% of the cumulative total, the company can claim the £375k from all three periods.

Because £320k has been claimed to date, the remaining £55k (= £375k - £320k) can be claimed in this accounting period.

Even though only £25k were UK costs in the third period, the company claims on the cumulative totals, enabling the company to claim for the entirety of their UK costs across the three years and thus claim on £55k of costs in the third period.

Therefore, by the end of the three accounting periods, creative tax relief is provided on 75% of core expenditure, i.e., the cumulative total UK costs (75% of £500k).

Summary of Additional Deduction per period

Questions? Get in touch!

Not sure how this applies to your production? Want to check your maths? Need a review of your costs to make sure you’re not leaving anything on the table? Myriad’s experts are here to help!

Our team has been making creative tax relief claims for a decade and we’re always happy to chat creative funding. Get in touch with our team to discuss your claim.