CREC051000 - Eligible expenditure: relevant global expenditure

Relevant global expenditure 

Section 1179CA Corporation Tax Act (CTA) 2009 states that for each accounting period, expenditure is ‘relevant global expenditure’ if: 

  • it is brought into account under section 1179BB in calculating the profits of the separate production trade for that period, and 

  • it is relevant production expenditure in relation to the qualifying production. 

Broadly, expenditure is brought into account under s1179BB if it has been incurred by the production company and counts as a cost of the qualifying production. Please see CREC035000 for details. 

Relevant production expenditure 

‘Relevant production expenditure’ is defined in section 1179DR CTA 2009 for films and TV programmes and section 1179FJ for video games. 

Expenditure is relevant production expenditure if it is core expenditure and is not excluded expenditure. 

 

Core expenditure 

For films and TV programmes, core expenditure is expenditure incurred on 

  • pre-production

  • principal photography

  • post-production

Core expenditure excludes any expenditure incurred on development, distribution or other non-production activities. The development phase is when initial scoping work is carried out to determine whether a production is commercially feasible, and generally falls before the production is ‘greenlit’. CREC010400 has further guidance on how to distinguish the different phases of production. 

For video games, core expenditure is expenditure incurred on 

  • designing

  • producing, and 

  • testing 

the video game. 

Core expenditure does not include costs incurred on initial concept design, debugging or post-release maintenance. The original concept is the broad outline for the game, including themes, gameplay style, and overall plot (where appropriate). This element is primarily concerned with commercial appeal and most of the considerations will be towards that end. CREC010500 has further guidance on how to distinguish the different phases of development. 

 

Excluded expenditure 

Relevant production expenditure must not be excluded expenditure. It follows that excluded expenditure does not attract relief. 

‘Excluded expenditure’ is covered by sections 1179DT and s1179DU CTA 2009 for films and TV programmes, and sections 1179FL and 1179FM for video games. The rules are the same for both. 

There are two main categories of excluded expenditure: 

  • Expenditure on research and development 

  • Expenditure on non-arm's length transactions with connected parties 

Expenditure on research and development 

Expenditure is excluded if the production company would be able to claim one of the R&D tax reliefs on it. The R&D tax reliefs include R&D expenditure credits, SME tax credits, and the newer merged scheme and credits for R&D-intensive SMEs. 

For the purposes of this rule, it does not matter whether the production company actually makes a claim to R&D relief in respect of the expenditure. As long as the expenditure could be subject to an R&D claim, i.e. it meets the qualifying criteria of one of the R&D reliefs, it is excluded expenditure for the purposes of the Audio-Visual and Video Games Expenditure Credits (AVEC and VGEC). 

Guidance on the R&D reliefs can be found at CIRD80000. 

Expenditure on non-arm's length transactions with connected parties 

If a production company incurs expenditure on a transaction with a connected party, and the transaction is not priced as if it was at arm’s length, that expenditure is excluded up to the amount of the connected party profit. Please see CREC052000 for detailed guidance on connected party transactions.