CREC029000 - Qualifying productions: minimum UK expenditure
Sections 1179DO and 1179FH Corporation Tax Act (CTA) 2009
At least 10% of the total core expenditure incurred on a production must be UK expenditure.
For films and TV programmes, core expenditure is expenditure on pre-production, principal photography and post-production of the film or programme. For video games, core expenditure is expenditure on designing, producing and testing the game. Please see CREC051000 for more.
UK expenditure is expenditure on goods and services which are used or consumed in the UK (CREC054000).
Co-productions
In the case of a co-production (CREC010300), the requirement that at least 10% of the core expenditure on the film or TV programme must be UK expenditure is applied by reference to expenditure incurred by all the co-producers, not just to the core expenditure incurred by the UK production company.
This means that any core expenditure incurred by an overseas co-producer which is also UK expenditure counts when applying the 10% minimum threshold. So, for example, where the UK expenditure incurred by a UK production company is only 7% of the total core expenditure, the 10% threshold can be met if an overseas co-producer incurs 3% or more core expenditure which is also UK expenditure.
Example
A TV programme is made as a co-production under the terms of the UK-France bilateral treaty, thereby qualifying as a British programme.
Total core expenditure on the programme is £10m, of which £2m is UK expenditure. The UK co-producer incurs £0.5m of this UK expenditure, the remaining £1.5m being incurred by the French co-producer.
Because 20% of the total core expenditure on the programme is UK expenditure, it will meet the minimum UK expenditure threshold and, provided the other tests are met, the UK production company will be entitled to AVEC based on the £0.5m UK core expenditure it has incurred.
Pre-completion periods
Whether a film, TV programme or video game meets the 10% UK expenditure condition cannot be determined until after the end of the accounting period in which the production is completed or abandoned (the ‘completion period’).
However, tax returns for any earlier periods (‘pre-completion periods’) can include claims to expenditure credits based on an expectation that the condition will be met. The tax return for a pre-completion period must include a statement of
anticipated total core expenditure for the production, and
anticipated UK core expenditure for the production
which indicates that the second amount is at least 10% of the first and the UK expenditure condition will therefore be met on completion of the production.
If the statement indicates that the 10% minimum will not be met on completion of the production, the production is treated as not having met the UK expenditure condition in the current period or any earlier period(s). Claims for earlier periods made in expectation of meeting the condition will be revisited, and credit amounts appropriately revised, if this is the case.
The completion period
The tax return for the completion period must include a final statement of the core expenditure incurred on the production and the core expenditure incurred that is UK expenditure.
The final statement should include all core expenditure on the production by the production company/co-producers. It should also include any deferred payments of UK core expenditure that are expected to be paid out in the future (whether by the production company or others), as long as they can be estimated with reasonable certainty.
If less than 10% of core expenditure is UK expenditure, the production is treated as not having met the UK expenditure condition in the completion period or any earlier period(s). Claims for pre-completion periods made in expectation of meeting the condition will be revisited, and credit amounts appropriately revised, if this is the case.
Later accounting periods
The question of whether a production satisfies the UK expenditure condition is determined by reference to the final statement of the core expenditure on the film that is UK expenditure.
It is possible that if the production company’s deemed trade continues into accounting periods beyond the completion period (e.g. because it continues to retain and exploit an interest in the production), subsequent amounts paid out as deferred payments may exceed the amount of such payments included on an estimated basis within the final statement of the core expenditure on the film that is UK expenditure.
Provided that the original estimates were reasonable in the circumstances in which they were made, the production should continue to be regarded as satisfying the UK expenditure condition – i.e. its status will not be revisited in the light of subsequent events.
Transitional rules for video games
Video Games Tax Relief (VGTR) used a minimum expenditure rule based on European expenditure. CREC092300 explains how to apply the transitional rules where a company claims to the Video Games Expenditure Credit (VGEC) on a video game after claiming VGTR on the same game for an earlier accounting period.