CONSULTATION, BUDGET AND VISION: TAX INCENTIVES FOR VFX AND ANIMATION?

Neil Hatton, CEO of UK Screen Alliance, highlights the Audio Visual Tax Reliefs consultation and delves into our recent proposal response on behalf of the industry.

Neil Hatton, CEO of UK Screen Alliance

Leaping to my feet from the audience, to announce, “Breaking news from Westminster!”, in the middle of the “State of the Nation” conference session at the Manchester Animation Festival last November, might have been a little dramatic, but I had received an email saying the Chancellor had just announced a consultation into the audio visual tax reliefs in his Autumn Statement. Apologies to Steve Henderson, the session chair that day for the interruption, but it was highly relevant to the topic being discussed. The consultation has rather dominated my months since, as it was immediately obvious that it offered an opportunity to pursue the goal which we have held for several years, for better VFX and animation tax relief. However, it became quickly evident that there were some parts of the consultation proposals which were unwelcome.

For more than a year now, we have been socialising our latest tax relief proposal around Westminster. The problem we are trying to address is that the 25% rate of tax relief available in the UK, whilst competitive for filming, doesn’t match up to the specific rebates for VFX and animation available in other countries, which range from 32% to 50%. We want to see the UK’s incentive for VFX and animation increase to be internationally competitive, and thereby boost the amount of projects choosing the UK for this work. Furthermore, our tax relief caps-out if you spend more than 80% of your budget in the UK. VFX, being the most portable part of the production, is very often removed from the UK as a result, and we know that over a three-year period, for films and TV series which qualified for UK tax relief by filming here, £1 billion of VFX was carried out abroad. These factors are stifling investment and growth in the UK.

For the first time, the Government acknowledged in the consultation proposals that the 80% cap disadvantages VFX in the UK. They offered to explore removing the cap, but this came with the significant negative caveat that it may necessitate a lower overall credit rate to avoid additional cost to the taxpayer. We are completely opposed to lowering the overall rate of relief, as that would seriously affect the filming incentive, and could lose the UK billions in inward investment and cost tens of thousands of jobs. It would be too high a price to pay for simply lifting the cap and wouldn’t help VFX either.

However, a proposal developed by UK Screen Alliance and Animation UK, with help from Saffrey Champness, offers an alternative, which does not cause extra net cost to the taxpayer, and means the rate does not need to decrease. By lifting the cap, only when more than 5% of the budget is spent in the UK on either animation or VFX, and then increasing the rate of relief for the VFX and animation elements only, our proposal will deliver more tax receipts from the increased economic activity, than the incentive will cost in the first place. It will be completely self-funding and will generate £260 million per year in value for the economy and more than 4,000 new jobs, spread across all four nations of the UK. We propose a net rate of tax relief of 32% for VFX and animation spend in London, and 37% for spend outside of London, putting the UK back on a level playing field with its competitor territories.

We’ve been taking every opportunity available to talk about our proposal with politicians from both Houses. I have spoken about it with two Secretaries of State at DCMS in the last six months, and to the Secretary of State for Business and Trade, as well as junior ministers and special advisors. I have been in meetings with Treasury officials and have spent a lot of time rallying support from industry stakeholders.

The Chancellor will deliver his Spring Budget on 15th March 2023, and we have made representations through official channels for our proposal, as well as, responding to the tax relief consultation. It is perhaps unlikely that we will hear any announcements in this Budget, as the Treasury aren’t expected to announce their conclusions on the consultation for a while yet, but you never know.

Last week, I listened to the new culture secretary, Lucy Frazer, speaking to the Creative Industries Council, a group of creative sector leaders to which I have now been appointed. She stated her priorities as Skills, Tax and Clusters, and stressed that both the PM and Chancellor recognise the potential of the Creative Industries. Soon, she will deliver the much-delayed Creative Sector Vision, so there are plenty of opportunities in the coming weeks and months for the Government to announce support for our plans for growth in VFX and animation, the most future-facing digital parts of the film and TV industry. At this stage I can’t predict how it will go but we are giving it a good shot, so let’s keep our fingers crossed for progress.

Source:UK Screen