How Should Film Financiers Prepare For The Recent Changes To UK Film Tax?

The changes to UK film tax announced for April 2025 will transform how film financing and distribution companies approach funding, budgeting, and compliance. The government is moving away from the long-standing system of tax reliefs towards a new expenditure credit regime. This change is not just technical — it reshapes how incentives are calculated, reported, and advanced in production financing. With the old system closing completely by April 2027, financiers must act now to prepare.

Who is affected by the recent changes to UK Film Tax?

The new rules directly affect film financing and distribution companies, as well as producers who rely on structured finance. Any production beginning on or after 1 April 2025 will fall under the new Audio-Visual Expenditure Credit (AVEC) rules. The older Film Tax Relief (FTR) will continue for productions already in progress, but it will no longer be available for any project once the system fully phases out on 1 April 2027. This creates a clear timeline for the industry, with no room for delay in adapting business models and financing agreements.

What changes first?

The most important shift is the replacement of Film Tax Relief with the Audio-Visual Expenditure Credit (AVEC). Under this system:

• Most qualifying expenditure will attract a 34% credit.
  
• Certain UK-based visual effects (VFX) costs will qualify for an increased 39% credit.
  
• The enhanced VFX expenditure is exempt from the 80% cap that previously applied, offering greater benefit to companies who place post-production and effects work in the UK.
  
• VFX costs can be included from 1 January 2025, although claims under AVEC can only be made from 1 April 2025 onwards.
  

For film financiers, this change alters the way deals are structured, since credits now appear as taxable income before being offset against corporation tax.

How does cash flow work?

Unlike the old relief, AVEC is taxable. The credit will first increase taxable profits before offsetting corporation tax, with any excess being paid out in cash. This means the headline rate of 34% or 39% is not the actual cash benefit received. 

Financiers need to model the net benefit accurately when structuring funding deals, pre-sales, or loans against tax credits. Misjudging the net return could affect recoupment schedules and repayment terms, so accurate forecasting is essential.

What about mixed slates with TV and games?

For companies financing across multiple creative sectors, timing is critical. From 1 April 2025, the video games sector will move to the Video Games Expenditure Credit (VGEC) at a 34% rate. The existing Video Games Tax Relief (VGTR) will remain in place only for projects that began before this date, but it closes fully on 1 April 2027. For mixed slates covering film, television, and gaming, companies must align production schedules and co-financing arrangements with these deadlines to avoid losing eligibility.

How to certify and file?

Certification and filing remain vital parts of compliance. The British Film Institute (BFI) continues to manage cultural certification. Productions will still need interim and final certificates to confirm eligibility before claims are submitted. Claims will be made through the CT600 Corporation Tax return, with specific boxes dedicated to AVEC. HMRC will expect supporting computations and detailed evidence. In order to fully justify claims, film financiers should ensure that cost reports clearly separate UK VFX spend from other qualifying costs.

What should change in greenlight and recoupment models?

The new rules require financiers to rethink how they structure deals:

• Reprice minimum guarantees and gap loans using net-of-tax AVEC values rather than headline rates.
• Remove the 80% cap when budgeting for UK-based visual effects (VFX) costs, but retain caps for other expenditure.
• Ensure that AVEC is prominently displayed in models as a component of the financing package, taking into account taxation before the net return.
• Re-cut cash flow schedules to reflect the timing of AVEC claims and potential payable credits.
• Build evidence packs including supplier residency, “used or consumed in the UK” tests, and cultural points documentation, which lenders will increasingly request during due diligence.

What will lenders ask for?

Lenders advancing against credits will require a robust audit trail. This includes BFI certificates, CT600 workings, VFX schedules, and supplier residency lists. A complete and transparent evidence package reduces the risk of HMRC challenges and supports earlier drawdowns from banks or financiers.

How do we handle slates that straddle 2025–2027?

For productions spanning the transition, timing will be complex. Companies should lock production start dates carefully, split budgets where necessary, and prepare hybrid models that may be used if principal photography transitions into the new regime. Importantly, any incurred expenses must be considered. All items or actions taken after 1 April 2027 must comply with the AVEC or VGEC regulations. Without careful planning, costs could be stranded and ineligible for relief.

How Apex Accountants Help Navigate These Changes To UK Film Tax

At Apex Accountants, we provide tailored support for film financing and distribution companies navigating the new Audio-Visual Expenditure Credit (AVEC) regime. Our focus is on helping you adapt financial models, strengthen compliance, and safeguard the value of your tax credits.

We offer:

• AVEC-ready finance models – updating assumptions for 34% and 39% credit rates and reflecting net-of-tax outcomes.
  
• Recoupment waterfall design – adjusting recoupment orders to place tax credits correctly before and after corporation tax and lender repayment.
  
• HMRC-compliant claim preparation – draughting detailed claim packs, including CT600 workings and audit-ready evidence of qualifying costs.
  
• VFX categorisation review – identifying and separating eligible UK VFX spend to secure the 39% uplift.
  
• Bank and lender coordination – working with financiers, sales agents, and completion guarantors to align tax credit timing with drawdowns and cash needs.
  
• Readiness reviews – assessing slates that run across 2025–2027 to avoid stranded spend and optimise claim timing.

Conclusion

The 2026 UK film tax overhaul will reshape how film financing and distribution companies plan, model, and claim their projects. incentives. Acting early is vital. Update your models, gather the right evidence, and secure certification on time.

Book a consultation with Apex Accountants today to protect your financial value, maintain compliance, and prepare confidently for the new regime.

FAQs Related to Recent Changes  to UK Film Tax 

Are tax credits ending in 2025?

No. The current tax reliefs are not ending immediately in 2025, but new productions that started from 1 April 2025 must use the new expenditure credit regime (AVEC, VGEC, etc.). The existing Film Tax Relief and other audio-visual reliefs remain available for all projects already in progress, but they will close permanently on 1 April 2027.

Will film tax relief close completely in 2027?

Yes. The government has confirmed that Film Tax Relief, High-End Television (HETV) relief, Children’s Television (CTR), and Animation Tax Relief (ATR) will all cease on 1 April 2027. After this date, all productions must claim under the new credit system.

How is the UK film industry responding to these changes?

The UK film sector continues to see strong investment, partly because of these updated credits. The 39% uplift for VFX is seen as a competitive advantage, and production service providers expect more post-production work to remain in the UK. The aim of the reform is to keep the UK attractive for international film financing and distribution companies.

What is the Irish S481 tax credit, and how does it compare?

Ireland’s Section 481 film The tax credit provides financial relief for qualifying film and television expenses. This issue often arises in comparisons, particularly regarding the UK’s transition to AVEC and VGEC, which are programmes that feature competitive rates and simpler structures, are designed to ensure the UK remains attractive against such international incentives.

What is the new UK film tax relief from 2025?

From 1 April 2025, all new productions must use AVEC, which introduces a 34% expenditure credit for qualifying spend and a 39% uplift for UK VFX. The relief is taxable and must be included in corporation tax filings.

Why are international productions moving to the UK?

The UK continues to attract major productions due to its skilled workforce, studio capacity, and competitive tax incentives. The updated AVEC regime is expected to further strengthen this position by making the system clearer, more modern, and more generous in targeted areas like VFX.

What about corporation tax rates in 2025–2026?

Corporation tax is an important factor for film financiers when modelling net returns from credits. For the financial year 2025–2026, the main corporation tax rate in the UK remains at 25% for companies with profits above £250,000, with lower rates applying to smaller profit bands. This directly affects how much of the AVEC credit is offset and how much becomes payable in cash.