A Complete Guide to Claim Audio-Visual Expenditure Credit (AVEC)
Maximize Your Tax Benefits for Film, Television, and Digital Media Production
The UK’s creative sector tax reliefs supported over £8.5 billion in production expenditure last year, yet industry reports indicate that nearly 30% of eligible companies fail to claim the full Audio-Visual Expenditure Credit they’re entitled to, leaving an average of £120,000 unclaimed per production.
Understanding the Audio-Visual Expenditure Credit (AVEC)
The Audio-Visual Expenditure Credit (AVEC) is a UK tax incentive designed to support the production of films, television programs, animations, and other audiovisual content. It replaced the previous Film Tax Relief and Television Tax Relief systems to create a unified scheme with enhanced benefits.
Key Features of AVEC:
- A payable tax credit worth up to 25.5% of qualifying expenditure
- Available to companies involved in the production of qualifying audiovisual content
- Can be claimed regardless of profitability
- Supports both UK and international productions meeting eligibility criteria
Eligibility Criteria for AVEC
To qualify for AVEC, your production must meet specific criteria set by HM Revenue & Customs:
1. Company Requirements:
– Must be a company within the charge to Corporation Tax
– Must be the production company (not solely a distributor or investor)
– Must be directly responsible for production activities and decision-making
2. Content Requirements:
– Must be intended for theatrical release or broadcast
– Must pass the cultural test or qualify as an official co-production
– Must meet minimum percentage of core expenditure in the UK
Qualifying Formats:
- Feature films: Fiction, documentary, or animation
- Television programs: Drama, comedy, documentary, animation
- Children’s content: Live-action or animation
- Video games: With significant narrative or storytelling elements
- Virtual reality content: Immersive storytelling experiences
AVEC Rates and Calculation
| Production Type | Credit Rate | Maximum Qualifying Expenditure | Potential Maximum Credit | Minimum UK Expenditure |
|---|---|---|---|---|
| Feature Films | 25.5% | 80% of total core expenditure | 20.4% of total budget | 10% of total costs |
| High-End Television | 25.5% | 80% of total core expenditure | 20.4% of total budget | 10% of total costs |
| Animation | 29.5% | 80% of total core expenditure | 23.6% of total budget | 10% of total costs |
| Children’s Television | 29.5% | 80% of total core expenditure | 23.6% of total budget | 10% of total costs |
| Documentary | 25.5% | 80% of total core expenditure | 20.4% of total budget | 10% of total costs |
How to Calculate Your AVEC Claim
Step 1: Identify Qualifying Expenditure
- Pre-production costs (script development, casting)
- Principal photography costs
- Post-production costs (editing, visual effects, sound)
- Limited deferred payments and profit participations
Step 2: Determine UK Core Expenditure
At least 10% of the total core expenditure must be incurred in the UK. “Core expenditure” refers to activities directly involved with the production process.
Step 3: Apply the Calculation Formula
The basic calculation for AVEC is:
AVEC Calculation Formula:
AVEC = (E – I) × 25.5% (or relevant rate)
Where:
E = The lower of:
– 80% of total qualifying expenditure
– Actual UK qualifying expenditure
I = Initial payments and deferred income
Step-by-Step Claim Process
Step 1: Pre-Production Planning
- Obtain advance assurance from HMRC (optional but recommended)
- Set up accounting systems to track qualifying expenditure separately
- Document UK expenditure and cultural test points
Step 2: During Production
- Maintain detailed records of all production expenditure
- Track UK versus non-UK expenditure carefully
- Keep all invoices and contracts organized
Step 3: Post-Production Claim
- Complete the cultural test or co-production agreement
- Prepare detailed claim computation
- Submit claim through Company Tax Return (CT600)
- Include AVEC additional information form
Practical Examples
Production Budget: £2,000,000
UK Qualifying Expenditure: £1,600,000 (80% of total)
AVEC Calculation: £1,600,000 × 25.5% = £408,000
Net Production Cost: £2,000,000 – £408,000 = £1,592,000
Production Budget: £1,500,000
UK Qualifying Expenditure: £1,200,000 (80% of total)
AVEC Calculation: £1,200,000 × 29.5% = £354,000
Net Production Cost: £1,500,000 – £354,000 = £1,146,000
Common Mistakes to Avoid
| Mistake | Consequence | Solution | Risk Level |
|---|---|---|---|
| Inadequate expenditure tracking | Underclaimed credit or rejected claims | Implement dedicated accounting from day one | High |
| Misclassifying UK vs non-UK expenditure | Reduced credit amount | Clearly document location where services performed | High |
| Missing cultural test documentation | Claim rejection | Prepare cultural test evidence during production | Medium |
| Late filing | Loss of credit | Begin claim process during post-production | High |
| Incorrectly claiming ineligible expenses | Penalties and repayment requirements | Consult with AVEC specialist before claiming | Very High |
| Failing to maintain supporting documentation | Unable to substantiate claim during HMRC review | Keep all records for at least 6 years | Medium |
Recent Changes and Updates
2024 AVEC Enhancements
The Spring Budget 2024 introduced several changes to the AVEC scheme:
- Expansion of qualifying activities to include certain visual effects work
- Streamlined application process for repeat claimants
- Clarified rules for productions with significant visual effects components
- Enhanced anti-abuse provisions to protect the scheme’s integrity
Brexit Considerations
Following the UK’s departure from the EU, co-productions now require specific bilateral agreements rather than automatic qualification under the European Convention on Cinematographic Co-production.
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