How the UK’s Audio-Visual Expenditure Credit Finances Independent Film Production

Key takeaways

• AVEC replaced the UK’s old film and TV tax reliefs in January 2024, paying a net 25.5% of qualifying UK spend for most productions.
• Independent films with core expenditure of £15 million or less can claim an enhanced 39.75% net rate, capped at £6.36 million per film.
• A separate VFX uplift adds extra relief and removes the usual 80% spending cap, but only after a film gets its final BFI certificate.

Producers building a film or TV company around UK-based work have a specific number to plan against: the Audio-Visual Expenditure Credit, or AVEC, which replaced the UK’s separate film, high-end TV, animation and children’s TV tax reliefs on January 1, 2024. It pays out as a taxable credit against a production company’s UK corporation tax bill, or as cash where no tax is owed.

The headline rate depends on what is being made and how big the budget is. For most film and high-end TV productions, AVEC works out to a net 25.5% of qualifying UK expenditure. For independent films budgeted at £15 million or less, a separate enhanced rate brings that closer to 40%. Both routes require a UK production company, a passed cultural test, and expenditure that meets HMRC’s rules for what counts as UK spend.

What AVEC Pays Out

AVEC is structured as an expenditure credit rather than a tax deduction, meaning it is calculated as a percentage of qualifying costs and then taxed itself, since it is treated as taxable income. For film and high-end TV, the credit is set at a gross 34% of qualifying expenditure, which nets out to roughly 25.5% after corporation tax at current rates, according to the British Film Commission and law firm CMS. Animated and children’s programming qualifies for a higher gross rate of 39%, or roughly 29.25% net.

The scheme is administered by HMRC, with British cultural certification handled separately by the British Film Institute. A production needs both: BFI certification to prove it qualifies as British, and an HMRC claim to receive the credit.

The Two AVEC Rates
Standard AVEC pays a net 25.5% of qualifying UK film and high-end TV spend; independent films with core expenditure of £15 million or less can opt into an enhanced 39.75% net rate, capped at £6.36 million per film, under the Independent Film Tax Credit introduced in the Spring Budget 2024.

How Qualifying Expenditure Is Capped

The credit is not paid on a production’s full budget. HMRC calculates it on whichever is lower: 80% of total core expenditure, or the actual UK core expenditure incurred, according to the BFI’s guidance on the credits. A production spending entirely in the UK is still capped at 80% of its core costs for the purposes of the calculation.

Productions must also clear a minimum UK spend threshold, putting at least 10% of core expenditure toward UK qualifying activity across pre-production, principal photography and post-production, the British Film Commission says. For high-end TV specifically, the BFC lists a minimum spend of £1 million per broadcast hour, with episodes required to run longer than 20 minutes to qualify.

A Richer Rate for Independent Films

Smaller-budget independent films can opt into the Independent Film Tax Credit, an enhanced version of AVEC introduced at the Spring Budget 2024. It lifts the gross rate from 34% to 53% — a net rate of 39.75% after corporation tax — for films with projected core expenditure of £15 million or less, according to the government’s policy paper and CMS. The maximum credit payable on any single film under this enhanced rate is £6.36 million.

The government’s original policy paper and CMS describe £15 million as the ceiling on projected core expenditure for the credit. Current BFI and British Film Commission guidance clarifies the mechanics: films with total core expenditure of up to £23.5 million can still qualify, but the enhanced 39.75% net rate applies only to the first £15 million of core expenditure — any spend above that is claimed at the standard AVEC rate, and projects with total core expenditure above £23.5 million cannot claim the enhanced rate at all.

To qualify, a film must pass the BFI’s cultural test and either have a British lead director or lead writer, or qualify as an official co-production, the government’s policy paper says. Companies cannot claim both the Independent Film Tax Credit and the separate VFX relief on the same film.

The enhanced credit applies to expenditure incurred from April 1, 2024, for films that began principal photography on or after that date. HMRC started accepting claims on April 1, 2025.

An Extra Boost for Visual Effects Spending

A separate enhancement targets visual effects work specifically. UK VFX costs attract a gross rate of 39%, against the standard 34%, for a net rate of 29.25%, according to tax and advisory firm Saffery. VFX spending is also exempt from AVEC’s usual 80% cap, so a production can claim relief on its full VFX costs rather than a capped share.

The change applies to expenditure incurred from January 1, 2025, with claims accepted from April 1, 2025. It comes with a timing catch: the enhanced rate can only be claimed in the accounting period when a production has received its final BFI certificate, known as the completion period, except where a project is abandoned. Productions claiming earlier using an interim BFI certificate get the standard 34% rate, then receive the full 39% on qualifying VFX spend once they file their completion-period claim, Saffery says.

Independent films budgeted at £15 million or less can claim an enhanced 39.75% net rate, capped at £6.36 million per film.

Qualifying as British: The Cultural Test

Every AVEC claim depends on passing the BFI’s cultural test or qualifying as an official co-production under one of the UK’s treaties, which include Canada, Australia, France and New Zealand among others, according to the British Film Commission. The test scores a production across four categories — cultural content, cultural contribution, cultural hubs and cultural practitioners — out of 35 points, with 18 needed to pass.

Pact, the trade body representing independent UK producers, says the Independent Film Tax Credit followed a campaign it launched in 2017, backed by BFI research and evidence to Parliament’s Culture, Media and Sport Committee. The group’s research put the UK independent film sector’s economic contribution at roughly £380 million in gross value added and about 7,300 jobs annually, and noted the international market value of UK independent films had roughly halved since 2007.

Setting Up to Claim It

Claiming AVEC requires incorporating a Film Production Company or Television Production Company within the UK corporation tax system, the British Film Commission says. This can be a UK subsidiary set up specifically for a project, including an “off-the-shelf” company established on behalf of a foreign parent, and it should be in place early in pre-production so costs qualify from the start.

That UK entity needs to handle arrangements across pre-production, principal photography, VFX and post-production, though subcontracting and loan-out arrangements are permitted if properly reflected in the company’s accounts. Applicants need BFI certification — interim or final — plus statutory accounts and tax returns to file with HMRC. The BFC lists typical processing times of six to eight weeks at the BFI and a similar eight-week target at HMRC.

Photo: Bex Walton from London, England · CC BY 2.0 · via Wikimedia Commons