Competitive tax incentives for VFX

1 February 2021

The UK’s Screen Sector tax breaks are successful in attracting international film & TV production, but as other territories also seek a piece of that action, we must ensure UK VFX companies remain globally competitive.

Visual Efeects (VFX) does not have its own bespoke UK tax incentive. Instead tax relief on VFX spending in the UK can be claimed via the Film (FTR), High-End TV (HETR), Children’s TV (CTR) and Animation (ATR) tax reliefs. It is also entirely possible to claim tax relief on projects where the only UK spending is for VFX.

Current position

Productions can claim 25% tax relief on their UK spending via the FTR, HETR, ATR or CTR incentives. However, the relief is capped once a production has spent 80% of its budget in the UK. Any UK spending beyond 80% receives zero relief. Often this impacts the VFX spending in the UK, a part of the production process which is easily transferred to another territory, where further tax incentives can be claimed. Estimates suggests that over £330 million per year of VFX work is performed outside the UK on productions that have filmed in the UK and claimed UK tax credits.

The 80% cap is written into UK law, originally to comply with EU regulations. The cap was designed to spread work around European Union member states, but actually had the effect of driving most work to Canada rather than other countries in Europe. The cap therefore actively disincentivises productions from remaining in the UK for VFX if they have also filmed here. The UK government should now legislate to neutralise the effect of the cap, which is holding back the UK’s VFX industry from achieving its full potential, when the global market for VFX is presenting a huge opportunity for economic growth, innovation and the creation of highly skilled, highly productive jobs in the UK.

We have made evidence-based proposals to the UK goverenment for a selective removal of the 80% cap and for targeted increases in the rate of relief for VFX. This will create jobs and boost the economic contribution of our sector to the UK economy. The tax income to the Treasury as a result of the increased economic activity would be greater than the cost of the incentive, making it self-funding with zero net cost to the taxpayer.

Past successes

We were part of the TV Coalition which lobbied for the introduction of tax relief for High End TV drama.

In 2013/14 UK Screen successfully campaigned to reduce the threshold for the minimum UK spend to allow more VFX-only projects to qualify for tax relief. Previously this threshold had been set at 25% and we argued that projects which had been shot elsewhere in the world were not choosing the UK for post and VFX because they were not meeting the minimum spend requirement. Alongside this change, UK Screen also proposed changing the cultural test such that there would be extra points for performing VFX work in the UK. The government agreed and introduced the necessary legislation to reduce the threshold to 10% and to reform the cultural test.

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