CREC031300 - Taxation: separate trade: cessation

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.


Separate trade rules to apply until trade ceases 

If a company has made an election to apply the separate trade rules to a production, the company must continue to apply those rules even if: 

  • the production ceases to be a qualifying production (CREC020000), or 

  • the company ceases to be a qualifying production company (CREC010200). 

The legislation is in section 1179BA Corporation Tax Act (CTA) 2009 

The production activities must be treated as a separate trade until the trade itself ceases.


Cessation of separate production trade 

The same rules apply to the cessation of a separate production trade as to any other trade. Guidance at BIM80565 onwards sets out the normal cessation rules. 

The question of whether any trade has ceased is a matter of fact. A production company’s trade may include: 

  • exploiting a film, TV programme or video game (see CREC036100), 

  • selling a production, and all the rights in it, for others to exploit, or 

  • making films, TV programmes or video games under contract to another person such that it never holds any of the rights. 

In cases where a production, and all the rights in it, is sold outright, it will be easy to determine the point where the trade ceases. 

The point of cessation may be less clear where some or all of the rights in the production are retained by the production company. Broadly speaking, a trade ceases when the production company no longer actively exploits, nor has any expectation that income will arise from, the production rights. 

Where a production company retains rights to enjoy future income from the production (possibly coupled to an obligation to make further deferred payments out of those receipts), that income is regarded as deriving from the ongoing trade of production/development relating to that trade. This is the case even where receipts follow a ‘stagnant’ period during which no income was received. The receipts will not relate to any new trade, nor will they be treated as non-trading (investment) income. 

If a trade ceases, the production company may be able to use losses under Part 14A CTA 2009 by using the special terminal loss rule. Please see CREC043000.