CREC037200 - Taxation: expenditure: timing

Where the separate trade rules in Chapter 2 Part 14A Corporation Tax Act (CTA) 2009 are applied to a production, the costs of production are recognised when they are represented in the state of completion of the film, TV programme or video game. In particular, 

  • prepayments (where payments are made in advance of the goods or services being supplied) are not recognised until the work has been done; and 

  • deferrals (where work is done or services supplied for promise of payment in the future) are recognised earlier, when the work is done (so long as the obligation of future payment is unconditional).


Unpaid amounts 

There is an additional anti-avoidance rule to prevent companies from inflating claims to the Audio-Visual or Video Games Expenditure Credits (AVEC or VGEC) with payments that remain unpaid for long periods. Amounts that remain unpaid over 4 months after the end of the accounting period in which they would normally be recognised are not recognised until the accounting period in which they are actually paid. 

Expenditure credits are only given on costs which have been recognised. Unpaid amounts therefore do not attract relief until the period in which they are paid and recognised as a cost. Please see CREC056300 for details and a worked example.

Participations and contingent fees 

In the film, TV and video game industries, payment for goods and/or services is sometimes contingent on the production making a profit. Effectively, the amount the supplier is to be paid is linked to the success of the project and they will only begin to be paid these amounts when the production generates sufficient income. In that case, the costs are recognised if, or when, the income on which they are to be based is also recognised (unless the unpaid amounts rule also applies, in which case it takes precedence). 

Expenditure credits due or paid to the production company are not considered to be income for the purpose of this rule. A payment that is contingent on the production company receiving an expenditure credit is recognised according to the usual rule: when the work it relates to is done.