CREC031200 - Taxation: separate trade: commencement

Section 1179BA Corporation Tax Act (CTA) 2009 

If a company intends to claim an Audio-Visual or Video Games Expenditure Credit (AVEC or VGEC) in respect of a film, TV programme or video game, the production is treated as a separate trade. This isolates the development of each individual production for the purpose of calculating profits or losses. 

The normal rules for deciding when a trade commences do not apply when deciding when a separate programme trade commences. Special rules apply instead. 

Once the separate trade has commenced, the normal rules apply for when a trade ceases. 

 

Films and TV programmes – section 1179DW CTA 2009 

The production company is treated as commencing a new trade in respect of a film or TV programme when: 

  • pre-production of the film or programme begins, or 

  • the company receives income from the film or programme, 

whichever is earlier. 

Commencement triggered by pre-production expenditure 

In many cases, the trade will commence when the film or programme begins pre-production. 

This means that as soon as the production company begins to incur pre-production expenditure on the film or programme, a separate trade relating only to that production begins. Income and expenditure relating to the production is then accounted for in relation to that trade using the Chapter 2 Part 14A rules (CREC035000). 

See CREC034000 for how development costs can be brought into the programme trade. 

The different phases of film and TV programme production (CREC010400) are not necessarily sequential and may well overlap or be out of order. 

For example, some post-production work will precede principal photography. In addition, significant amounts of work at the pre-production stage may have occurred before the development stage has finished. 

With film and TV programmes, it is normal for expenditure on pre-production activities to trigger the commencement of the programme trade while development expenditure is still being incurred. 

Commencement triggered by receipt of income 

In some cases, the trade will commence before pre-production starts if the production company receives income relating to the film or programme (see CREC036100). For example, the commencement of the trade may be triggered when a production company receives a grant to help fund development activity. 

This ensures that all production income is taxable as trading income. This income will be offset by pre-trading expenditure brought into account on the commencement of the trade. However, it may produce taxable profits if insufficient expenditure has been incurred by the end of the accounting period. 

The fact that the production company has commenced the separate trade due to receiving production income does not mean that pre-production has commenced. 


Video games – section 1179FO CTA 2009 

The development company is treated as commencing a new trade in respect of a video game when: 

  • design of the game begins, or 

  • the company receives income from the video game, 

whichever is earlier. 

Commencement triggered by design expenditure 

In many cases, the trade will commence when the development company begins designing the video game (CREC010500). 

This means that as soon as the development company begins to incur design expenditure on the video game, a separate video game trade relating to that video game begins. Income and expenditure relating to the video game is then accounted for in relation to that trade using the Chapter 2 Part 14A rules (CREC035000). 

See CREC034000 for how development costs can be brought into the video game trade. 

Commencement triggered by receipt of income 

In some cases, the trade will commence before design starts if the development company receives income relating to the video game (see CREC036100). For example, the commencement of the trade may be triggered when a development company receives a grant to help fund development activity. 

This ensures that all video game income is taxable as trading income. This income will be offset by pre-trading expenditure brought into account on the commencement of the trade. However, it may produce taxable profits if insufficient expenditure has been incurred by the end of the accounting period. 

The fact that the development company has commenced trade due to receiving income from the video game does not mean that the design phase has commenced. 


Trades commencing before the opt-in period 

If, according to the special rules, a separate trade commences in an accounting period before the opt-in period (CREC031100), the company must amend its tax return(s) to apply the separate trade rules for: 

  • the period of commencement 

  • any other accounting period between the commencement period and the opt-in period. 

The normal time limit for amending a tax return does not apply where an amendment needs to be made for this reason – the legislation is in section 1179AC CTA 2009. However, the time limit for making a claim to relief still applies as normal (see CREC085000).