VFX and post production are allowable costs within the Audio Visual Expenditure Credit (AVEC), providing the qualifying criteria are met. A minimum UK expenditure requirement of 10% of total core production expenditure must be exceeded, and the project must qualify as British via the Cultural Test or be an official co-production. Note that there can be sufficient points available in the Cultural Test to qualify if only performing VFX or post in the UK.
You do not need to perform all production activity in the UK and it is absolutely possible to claim UK tax relief for post and VFX only, even if no principal photography occurs in the UK.
It is essential to set up a UK based limited production company (FPC or TPC) before shooting begins in order to account for all production costs, even if only the post-production or VFX occurs in the UK.
The VFX uplift
VFX expenditure receives an uplift to the standard AVEC, taking it from 25.5% net to 29.25% net after tax. The AVEC is subject to tax at a notional rate of 25%, so the headline rates of 34% or 39% equate respectively to 25.5% or 29.25% after tax. Additionally, the VFX expenditure is exempt from the overall 80% cap on total core production spend eligible for UK tax relief. This means that productions can receive 25.5% incentive on filming and other non-VFX costs in the UK (up to 80% of total core production spend) and still receive a 29.25% incentive on their VFX spend, regardless of whether that spend takes their total UK core spend above the 80% cap on eligibility for relief.
All VFX expenditure claimed for must occur in the UK, so any outsourcing of VFX activity to non-UK subsiduaries or subcontractors must be deducted from the claim. This also applies to activity by remote VFX artists operating outside the UK. The use of cloud storage and rendering is a claimable expense regardless of it’s location, but it must be under the control of UK-based VFX artists.
Relevant visual effects work is defined as, “the use of computer technology to create or alter images for inclusion in a film or programme.” For example, the cost of third-party vendor contracts to provide any of the common services listed below, or other work to digitally alter or create images, is allowable:
- Pre-visualisation (provided it does not occur in the development phase)
- Concept design (provided it does not occur in the development phase)
- Storyboarding to plan VFX work/shots
- Creating CGI backdrops, characters and wholly CGI shots to be added to filmed footage
- Compositing
- Colour correction
- Beauty work
- Character and creature animation
- 3D modelling
- LIDAR scanning and photogrammetry (where it is used to create VFX environments and assets)
- Lighting and rendering
- Digital matte painting
- Temporary shots used for editing
- Motion capture (including body scans & facial capture)
- Stereo 3D conversion
- Producing images for virtual sets
The definition does not extend to the principal photography that creates the images that VFX artists work on.
Costs incurred by using AI for the creation or alteration of images are eligible expenses for the VFX uplift.
VFX costs related to creating digital assets for use in Virtual Production are eligible for the uplift, but not costs of shooting in front of LED walls (you can still claim standard AVEC for virtual production on-set costs at 25.5% net, if below the 80% cap)
SFX costs are not included in the uplift (you can still claim standard AVEC at 25.5% net, if below the 80% cap)
If VFX is part of a full-service post-package including non-VFX services, the production company must apportion the fee paid to the vendor on a just and reasonable basis, to exclude the element that relates to non-VFX services. These non-VFX post production services may still be eligible for the standard AVEC at 25.5%, if below the 80% cap.
The cost of any VFX supervisor contracted directly by the production is also eligible for the VFX uplift, but must be pro-rated according to their activity in the UK.
VFX within the Enhanced AVEC for Limited Budget Films
VFX and post production are eligible expenses within the Enhanced AVEC for Limited Budget Films under £23.5 million core production expenditure, colloquially known as the Indie Film Tax Credit (IFTC), even though it is not restricted to independent films and low budget studio films could also qualify. Relief is tapered if the core production expenditure of these films exceeds £15 million and the maximum net rebate that can be claimed is £4.77 million. The IFTC only applies to productions with theartical releases; it does not apply to televison or streaming releases.
The VFX uplift cannot be combined with the IFTC or with the animation AVEC. This means that the overall 80% cap will still apply to the VFX spend if claiming the IFTC. However any VFX or post production expenditure on films claiming IFTC, are eligible costs, and could receive a net rebate of up to 39.75% depending whether the 80% cap on total eligible UK expenditure, or the overall £4.77 million IFTC cap are exceeded. If the core production expenditure is betwen £18 million and £23.5 million, it may be worth transfering to the AVEC if there is significant VFX expenditure, as the VFX uplift can then be claimed, which will be exempt from the 80% cap, and therefore the overall UK net cash rebate may be higher.
