AVEC, VGEC and Interest Deductions: What Creative Businesses Should Check Before 2027

HMRC has proposed that Audio-Visual Expenditure Credit (AVEC) and Video Games Expenditure Credit (VGEC) should no longer count when working out how much interest a group can deduct for Corporation Tax. For groups with significant borrowing, that could reduce the interest they can deduct from 1 January 2027.

It won't affect every creative business, and it doesn't change AVEC or VGEC rates. This article explains what has been proposed, who should look at it and what finance teams can check now.

What has HMRC proposed?

On 28 October 2026, HMRC published a policy paper on the Corporate Interest Restriction (CIR) and creative reliefs.

AVEC and VGEC currently sit within tax-EBITDA, which lets affected companies and groups deduct more interest than intended. The paper proposes excluding AVEC and VGEC from tax-EBITDA, the earnings figure used in the CIR calculation.

The change would apply from 1 January 2027, and HMRC says the legislation is being introduced in Finance Bill 2026-27. Until that Bill is enacted, this is a proposal and the detail could change.

Only around 1,000 groups are expected to claim AVEC or VGEC and the CIR interaction relevant to only some of them.

What does it mean in plain English?

The CIR limits how much net interest and financing cost a group can deduct against its UK Corporation Tax profits. Under the main fixed ratio rule, the limit is 30% of tax-EBITDA, which is broadly your UK taxable profits before interest, tax and capital allowances, adjusted for certain reliefs. The group ratio rule can give a different result, and you use whichever gives the higher allowance. HMRC's CIR guidance sets out both methods.

Because AVEC and VGEC are currently counted in tax-EBITDA, a larger credit has meant more room to deduct interest. Removing them makes the earnings figure smaller, and the interest a group can deduct shrinks with it.

In a simplified example using the 30% fixed ratio rule:

A games group has net interest and financing costs of £7 million in a 12-month period. Its tax-EBITDA is £25 million, including £5 million of VGEC.

Today, 30% of £25 million gives interest capacity of £7.5 million, so all £7 million is deductible. With VGEC excluded, tax-EBITDA falls to £20 million and capacity falls to £6 million. That leaves £1 million of interest non-deductible in the period, which at 25% Corporation Tax is around £250,000 of extra tax, before any carry-forward or reactivation. A group with the same borrowing and higher earnings from other activities might see no change at all.

Which businesses might be affected by the CIR changes?

The CIR only applies where a company or group has net interest and financing costs of more than £2 million in a 12-month period. This is the annual net cost of interest and similar financing, and the wider group position matters, so modest borrowing in one company can still take a group over the line once everything is added together.

The proposal is most likely to matter if you or your group:

• claim AVEC or VGEC,
• have net interest and financing costs above £2 million in a 12-month period, and
• rely on those credits for a meaningful share of its tax-EBITDA.

Groups or companies at or below £2 million aren't restricted, so this change won’t affect them.

This proposal is separate from two other 2027 changes. The April 2027 move to AVEC is when the old film, TV and games reliefs close. A separate change to quarterly instalment payments covers how expenditure credits count towards the thresholds that put a company into paying Corporation Tax early. Neither is part of the CIR proposal.

What should finance teams check now?

You’ll first want to check whether the CIR change will affect your group:

• Are your group's net interest and financing costs above £2 million in a 12-month period?
• Where are you likely to sit in your next few accounting periods?

If you will be impacted, you’ll need to check:

• How much AVEC and VGEC is currently included in your group's tax-EBITDA?
• Do you use the fixed ratio or group ratio method, and do you have disallowed interest brought forward?
• How would a lower interest allowance change your cash tax forecasts for 2027?
• How does the 1 January 2027 start date apply to your accounting periods, particularly any period that straddles it?

How can Myriad help?

Myriad works with production companies and games studios on AVEC and VGEC claims. We can help you pinpoint how much credit your group is claiming and talk through whether this proposal is likely to be relevant to your business.

For many groups the change will be small, and for some it won't apply at all. Knowing which applies to you before January is the useful part. If you're a finance director, CFO or business owner in a creative group with significant borrowing, contact Myriad to discuss whether the proposal is relevant to you.