The UK VFX Tax Credit – Starting January 1, 2025

The UK government has announced the introduction of a new Visual Effects (VFX) tax credit, effective from January 1, 2025.

The UK government has announced the introduction of a new Visual Effects (VFX) tax credit, effective from January 1, 2025. This initiative is widely regarded as a crucial step to attract investment into the VFX sector and is projected to create 2,800 new jobs. It comes as a much-needed intervention for an industry still recovering from recent disruptions.

Background and Motivation
The existing 80% cap on eligible expenditure for the UK tax relief & Expenditure credit has led many productions to move their VFX needs abroad in search of more favourable rates. Recognising this challenge, the government has implemented changes that many view as a lifeline for the UK’s VFX sector.

Key Features of the New VFX Tax Credit

• Increased Relief Rate: The tax credit will increase from 34% to 39%, providing an effective rate of 29.25% on VFX-qualifiable spend.
• Expanded Scope: VFX, defined as “work consisting of the use of computer technology to create or alter images for inclusion in a film or program,” will now include costs associated with artificial intelligence (AI), including generative AI (GenAI), which was initially excluded in earlier proposals. Virtual production spend is also eligible, although virtual production techniques, such as filming in front of an LED screen, will not qualify.
• Removal of the 80% Cap: The 80% cap on eligible VFX expenditure will be removed, allowing 100% of allowable spend to qualify for the tax credit.

Eligibility and Claim Process

• Companies must provide BFI with evidence of their VFX-related costs and details of the VFX providers involved. HMRC & BFI will release further guidance on the claim process in due course.
• Claims can only be made for the completion period of a production. This refers to the accounting period when the film or program is complete and has received a final certificate from the British Film Institute (BFI) or the period in which the production is abandoned.
• For claims made before the production is complete (using an interim BFI certificate), companies will receive the standard 34% Audio-Visual Expenditure Credit (AVEC) rate on their VFX costs, capped at 80%. When the company successfully submits a claim for VFX relief during the completion period, they will receive the full amount of credit owed for any VFX expenditure incurred after January 1, 2025. This applies to costs from both the completion period and the uplift on the preceding pre-completion periods.

Exclusions and Limitations

• Productions claiming the Independent Film Tax Credit (IFTC), Children TV & Animation Tax credit cannot claim the additional VFX tax relief. Eligible productions must choose between the two.
• Costs associated with special effects are not eligible.

Submission Timeline
Claims for the new VFX tax credit can be submitted starting April 1, 2025.

This initiative signals the government’s commitment to revitalizing the UK’s VFX industry and strengthening its position as a global hub for cutting-edge visual effects.

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