CREC044200 - Losses: examples: terminal losses applied to new production

A video games development company (VGDC) develops Video Game 1 and claims VGEC. The separate trade for the purposes of Part 14A CTA 2009 commences on 3 October 2024 and the VGDC draws up accounts to 31 December each year. 

The accounting periods to be considered are therefore: 

• 3 October to 31 December 2024 

• Year ended 31 December 2025 

• Year ended 31 December 2026 

Video Game 1 is completed on 11 March 2025. The company ceases its video game trade in respect of Video Game 1 on 23 October 2025, when it sells the rights to Video Game 1 outright. 

On 10 April 2025, the VGDC commences a new video game trade in relation to Video Game 2 which also qualifies for VGEC. 

Note: the expenditure credits in this example are calculated on the assumption that UK expenditure is less than 80% of relevant global expenditure. In reality, the amount of credit due will vary depending on the proportion of UK expenditure. For guidance on how to calculate the amount of expenditure credit due for an accounting period, please see Chapter 6 of this manual. 

The computations for the first period show: 

Period ended 31 December 2024	Video Game 1 (£)	Video Game 2 (£)	Other (£)
Income from the video game	200,000	-	-
Costs of the video game	(1,000,000)	-	-
Expenditure credit (34%)	340,000	-	-
Profit/(loss) on video game	(460,000)	-	-
Other income – non-trade loan relationship	-	-	15,000

 
The computation shows a trading loss of £460,000 on Video Game 1. As this is a pre-completion period, the loss is restricted and cannot be offset against other income. The interest income (the non-trade loan relationship income) is therefore taxable. The £460,000 loss is carried forward to the next accounting period. 

In the next accounting period, the computations show: 

Period ended 31 December 2025	Video Game 1 (£)	Video Game 2 (£)	Other (£)
Income from the video game	400,000	450,000	-
Costs of the video game	(300,000)	(600,000)	-
Expenditure credit (34%)	102,000	204,000	-
Profit/(loss) on video game	202,000	54,000	-
Other income – non-trade loan relationship	-	-	5,000

 
The computation shows a profit of £202,000 on Video Game 1 and a profit of £54,000 on Video Game 2. 

Since Video Game 1 was completed on 11 March 2025, this is the completion period in respect of Video Game 1. It is also the cessation period of the trade, because the rights were sold on 23 October 2025. 

The brought forward loss of £460,000 reduces the profit of Video Game 1 for the current period to nil. This leaves an unutilised loss of £258,000 (£460,000 - £202,000). 

As this is the completion period, the remaining loss can be: 

• set against other profits of the same accounting period (the £54,000 trading profit on Video Game 2 and the £5,000 non-trade loan relationship income), 

• carried back against profits of the accounting period ended 31 December 2024 (the £15,000 non-trade loan relationship income), 

• surrendered as group relief, if available. 

Any unused loss is carried forward again for set off against profits of the same trade. 

The VGDC uses the remaining loss as follows: 

-	£
Set against other profits of the same accounting period (£54,000 + £5,000)	£59,000
Carried back against profits of the previous period	£15,000
Surrendered as group relief	£20,000
	£94,000

 
This is the maximum amount that can be relieved. It leaves nil total taxable profits for the VGDC in both periods. There is a £164,000 (£258,000 - £94,000) unused loss remaining. 

This loss would normally be carried forward against profits of the same trade. However, the trade for Video Game 1 ceases in this period, so there are no future periods for the trade. The VGDC claims terminal loss relief under s1179BG, which means the losses are transferred to the trade of Video Game 2. This trade will therefore treat the £164,000 losses as brought forward losses in the next accounting period. 

The computations for the next period show: 

Period ended 31 December 2026	Video Game 1 – Ceased (£)	Video Game 2 (£)	Other (£)
Income from the video game	-	300,000	-
Costs of the video game	-	(350,000)	-
Expenditure credit (34%)	-	119,000	-
Profit/(loss) on video game	-	69,000	-
Other income – non-trade loan relationship	-	-	50,000

 
The computation for this period shows a trading profit of £69,000 for Video Game 2. The losses deemed to be brought forward of £164,000 are utilised against this profit first. 

The profit is reduced to nil and there are £95,000 of losses remaining. They cannot be set against the non-trade loan relationship income because losses transferred under s1179BG can only be used against the profits of the separate trade for Video Game 2.  

The unused £95,000 loss is deemed to be brought forward for Video Game 2 at the beginning of the next period. 

The following table shows how the losses from Video Game 1 are used in the various accounting periods: 

-	Video Game 1 losses (£)	Video Game 2 losses (£)
APE 31/12/2024
Development period loss	460,000	-
Losses carried forward into completion period	460,000	-
APE 31/12/2025
Losses brought forward	460,000	-
Set off against Video Game 1 profit	(202,000)	-
Set off against NTLR	(5,000)	-
Set off against Video Game 2 profit	(54,000)
Carried back against NTLR of previous period	(15,000)	-
Surrendered as group relief	(20,000)	-
Losses carried forward under terminal loss relief rules	164,000	-
APE 31/12/2026
Losses brought forward	-	164,000
Utilised against profits of Video Game 2	-	(69,000)
Losses carried forward	-	95,000