For most industries, dealing with HMRC consists of ruthless compliance requirements and demands for tax payment. For certain industries however, the government have chosen to offer tax incentives to encourage growth and development. First among those are what the UK government regard as “Creative Industries” which consist of:
Museums and Galleries
For those trading within the creative industries, generous tax credits and tax reliefs are available in the form of Creative Industry Tax Relief.
Qualifying for Creative Industry Tax Relief
The barriers for qualification are not high, while each industry has specific rules on how the below qualifications are determined, in general to qualify you simply need to be able to demonstrate that:
Your Production is “Culturally British”
While an apparently strange question – particularly in Northern Ireland – the rules on being considered a “British” video game or film are tied to rules set by the British Film Institute and easily covered by any UK company. The factors taken into consideration are whether the story and setting are British, whether the company is based in the UK and whether the staff members assigned to work on various parts of the project are UK citizens. For most companies in the industry, passing this check is a formality, albeit it requires communicating and providing thorough budgets and plans to the British Film Institute.
The Project is Intended For Supply.
Another very easy qualification – the applicant simply has to have an intention to complete and distribute the project. This is in place merely to prevent abuse of the system.
A Certain Percentage of the Budget Must Be Spent in the UK or EEA
These percentages range fairly low and vary by industry. For Video Games, 25% of the budget has to be spent within the EEA, for film, 10% of the budget must be spent in the UK.
What Do You Receive From This Tax Relief?
Once you’ve met the above conditions, you will make one of two choices on how you wish to receive your tax relief:
1. Accept a tax enhancement of 100% of all qualifying expenditure (The lesser of UK expenditure or 80% of total expenditure). For example, if qualifying expenditure was £10,000, you would receive tax relief as if you had spent £20,000. At a Corporation tax rate of 19%, this would save you £1,900 of future taxes
2. If a loss is generated within the year, the enhanced expenditure can be traded in for a 25% tax credit. For example, if you had spent £10,000 and had incurred a loss, you could surrender this £10,000 loss for a tax credit of £2,500.
For the vast majority of productions, the second option will be chosen as it is clearly superior. The only restriction is that it can only be claimed in situations where the company is reporting a loss, but for most creative industries, losses are expected for years as a video game, film or programme is slowly developed before any revenue is made.
In Summary, while the rules on claiming Creative Tax Credits can be intimidating at a glance, in practice nearly every UK company within these industries will easily qualify for a tax credit of 25% on all projects under development. HMRC and the BFI are inclined to be very helpful to anyone applying for this relief as they view it as an investment in the UK’s creative future. Seize the opprtunity if you work in these industries!