UK VFX Incentive: HMRC Issues Final Guidance on Qualifying Costs

Lloyd Gunton

Learn how the UK's enhanced VFX incentive rate, including the eligibility of generative AI costs, works in practice for productions.

In the Autumn 2024 budget, UK Chancellor Rachel Reeves—alongside HMRC and the Treasury—brought welcome clarity of the incoming enhancement of the VFX incentive rate, which was initially announced by the previous government in the March 2024 budget.

In March 2025 final guidance was published setting out the details of the enhancement and which costs qualify, along with a step-by-step guide to calculating the additional incentive available to productions. 

Overview of the Audio-visual Expenditure Credit (AVEC) and qualifying VFX spend

As part of the 2024 budget, it was previously announced that VFX spend would be eligible for a higher rate of Audio-visual Expenditure Credit (AVEC) at 39% compared with the standard 34% for other spend. It was also announced that VFX spend would be excluded from the 80% qualifying spend cap, creating a double benefit for VFX spend.

HMRC and the Treasury issued a consultation (which Entertainment Partners was part of) on:

• The details of the incentive uplift
• How it was to be administered
• What would qualify and
• Any unforeseen consequences of the uplift as originally designed.

What VFX spend qualifies for the enhanced credit?

VFX spend is now defined in legislation as “work consisting of the use of computer technology to create or alter images for the inclusion in the film or programme.”

Post-consultation, VFX spend will be more concisely defined than the original BFI definition. Now, it is defined as “work consisting of the use of computer technology to create or alter images for the inclusion in the film or programme.”

In HMRC’s original proposal, generative AI costs were excluded from the enhanced rate. Our response to the consultation was that excluding such costs would have had been detrimental to the industry in the longer term, and that attempting to isolate such costs would create an almost impossible administrative burden on accountants and production companies – a view that was replicated across the industry.

It has now been explicitly confirmed that generative AI costs are eligible for the enhanced VFX rate, which is of huge benefit to the value and futureproofing of the incentive.

In the guidance notes, HMRC has provided a list of what will be considered common VFX services, which is slightly broader than may have been expected and extends to colour correction and motion-capture services. 

How does the enhanced VFX rate actually work?

All standard rate HETV and film productions will be automatically eligible for the enhanced VFX rate. Animations, children’s TV and IFTC-eligible productions will not be eligible as they already receive the increased rate (or higher) on all eligible costs.

Under the standard legislation, an example production would be eligible for the credit as follows:

Under the new rules, a series of six steps must be followed to calculate the additional VFX credit that is now available to a production. The way that a production moves through the steps differs depending on how the spend is broken down.

Click here to see the steps for calculating the additional VFX credit for the above examples, and the different outcomes.

As can be seen in the linked example, the calculation is fairly involved across multiple steps.  

The principle is that, where the 80% cap is applied, a production may assume that VFX spend is the first spend to be excluded – this enhances the value of the uplift to the maximum possible level. 

Where the 80% cap does not apply, the credit received on VFX spend under a standard claim is netted against the enhanced rate received to give the uplifted additional amount available. 

When can VFX costs be claimed?

VFX costs incurred on or after January 1, 2025 are eligible for the higher rate and it is now live for applications.

However, one point that should be emphasised is when the enhanced rate will be payable for a production. The enhanced rate will only be payable in completion periods. Interim claims that include VFX spend will receive the standard AVEC rate and then receive the uplifted rate in their final claim on all costs to date.

Practically, this has limited impact as most interim claims are done to the end of shoot and therefore include minimal VFX elements. There is also no impact on the total value of the incentive, merely the timing.

What do productions need to provide HMRC to claim the credit?

Going forward, there will be additional disclosure requirements due to HMRC.

For each claim productions must confirm the following as part of the Additional Information Form (AIF) that is submitted alongside each AVEC application:

• Number of vendors working on VFX for the production
• For each vendor engaged on the production the company must provide:
  • Vendor company number and name
  • VFX costs incurred with the vendor
  • Number of people engaged in VFX work at the vendor (within ranges given by the form)
  • A description of the VFX services provided

The requirements are therefore not onerous but may still require some input from the VFX vendors themselves, specifically regarding the number of people engaged at the vendor on the project.

Questions? Let EP help you with UK production incentives

If you’d like to know more about these changes or how to access the enhanced VFX rate on your production, please don’t hesitate to contact me, Lloyd Gunton, VP of Incentives UK. 

With vast experience in media and entertainment accounting, tax and tax incentives, finance, and accounting, our expert team can provide film and TV tax credit incentive estimates and formal opinions to lenders, manage tax credit claim submissions, work with producers to advise on and finalise budgets and provide deal close support for both independent and multi-party financed projects.

Looking for the right incentive for your production? Visit our Incentives Map to view details of local and global incentives, or try our incentives estimator and jurisdiction comparison tools to see just how much your production can save.