CREC010200 - Overview and definitions: production companies
AVEC and VGEC provide support to production companies. A production company is the company that actually makes the film, TV programme or video game. This may sound like a statement of the obvious, but it embodies the purpose of the credits, which are aimed at production activity - i.e. at the film, programme or game’s manufacturing process, rather than its creative gestation.
A company should assess whether it is a qualifying production company in relation to a production at the end of each accounting period. Where the assessment depends on future events, it should be based on the reasonable expectations of the company at the time of the assessment.
Film production companies and television production companies
To be the film production company (FPC) in relation to a film or the television production company (TPC) in relation to a TV programme, a company must be responsible for:
pre-production
principal photography
post-production
delivery of the completed film or programme.
The company must also:
be actively engaged in planning and decision-making during pre-production, principal photography and post-production
directly negotiate, contract and pay for rights, goods and services relating to the film or programme.
The legislation is in section 1179DP of CTA 2009.
Video game development companies
A production company producing a video game is known as a video game development company (VGDC). References in this manual to production companies include development companies.
To be the VGDC in relation to a video game, a company must be responsible for:
designing,
producing, and
testing the game.
The company must also:
be actively engaged in planning and decision-making during the design, production and testing phases
directly negotiate, contract and pay for rights, goods and services relating to the game.
The legislation is in section 1179FI of CTA 2009.
Interpretation of the requirements
A production company does not need direct responsibility for all aspects of the activities listed above. Third parties are not prohibited from undertaking some of these activities on behalf of the production company as subcontractors.
It is common industry practice to subcontract third parties to deliver certain elements of a production. This may be activities such as post-production or sound editing. Where this is the case, the contracting company is not prevented from being the production company for tax purposes.
The production company must still retain overall responsibility for the subcontracted activities and have active involvement. A production company cannot simply commission the entire film, programme or game and only hold the creative copyright. Similarly, if a company subcontracts out all the work and is only used as the vehicle through which contracts are run, with no input from the company itself into the production, then it will not be a production company.
The subcontractors will not qualify as a production company as they are only delivering an element of a production and do not have the responsibilities outlined above.
The production company need not (and generally will not) be the only party that negotiates, directly contracts and pays for things, nor does it need to pay for all the rights, goods and services. Subcontractors may undertake some of these activities on its behalf. However, the production company must still have some involvement in these activities – it must direct the overall project and cannot simply pass all responsibility on to its subcontractors.
Production companies must be able to provide evidence to HMRC which shows that the company is actively inve olved in the production and decision-making processes. A contractual assignment that identifies the claimant company as the production company is not sufficient to show the claimant company’s involvement in production. Some form of extrinsic evidence is required to demonstrate a production company’s involvement and control of the production.
For example, for a film, evidence could include email correspondence, receipts or documents that show the production company engag d the key cast and crew, booked travel and made other logistics arrangements for the film production, or took decisions concerning the location or catering for the film.
If no company meets the requirements for a qualifying production, then there is no production company. Therefore, no expenditure credits can be claimed for the production.
A production company might also have additional responsibilities. These might include development, marketing and distribution. There is no requirement that it must have these responsibilities in order to be eligible for the relief.
No more than one production company per production
There can be no more than one production company for any production. Once a qualifying company has made an election to apply the separate production trade rules to a production (CREC031100), no other company can be the qualifying company for that production.
In some cases, it is possible that more than one company will meet the requirements for qualifying as the production company. In such circumstances, the production company is the company which is more directly engaged than any other company in the matters required to be a production company.
The phrase ‘more directly engaged’ is not defined in the legislation; this can only be decided on the facts of each case.
If there is no company which meets the requirements of the definition, then there will be no production company in relation to that production.
Companies in partnership and co-developments
Although the definition of a production company excludes those making productions in partnership, a company is not automatically prevented from being a production company because it is a member of a partnership. It is only prevented from being a production company with respect to the production that it is making in partnership. This ensures that the tests are applied to a single company.
Co-productions
The rules are slightly different in the case of co-productions – see CREC010300.