CREC034000 - Taxation: preliminary expenditure

Section 1179BD 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. 

For many productions, the separate trade commences when pre-production begins (for films and TV programmes) or design begins (for video games) – see CREC031200. There will often be expenditure on the production that has been incurred prior to the commencement of the trade. 

Where a production company is a Special Purpose Vehicle (SPV) set up especially to run a single production, the preliminary work will be bought by the SPV, or its value will be transferred in after the trade has commenced. It will therefore automatically be treated as an expense of the trade after it has commenced. 

Where the preliminary work is instead done by the production company itself prior to the commencement of the trade, this preliminary expenditure can be transferred to the separate trade. The expenditure is treated as having been incurred by the separate trade on the day that it commences. 
 

Preliminary expenditure already included in company tax returns 

Preliminary expenditure may have been incurred some time before the trade commences. The expenditure may already have been reflected in the company’s accounts and tax computations. However, the expenditure properly relates to the production trade, so where this is the case, the company must amend its previous tax return(s). 

The normal time limits for amending returns and assessments are specifically overridden by the Part 14A rules to allow companies to do this – the legislation is in section 1179AC CTA 2009.