CREC061440 - Expenditure credit calculation: additional credit for visual effects costs: additional VFX credit calculation example 1
Example 1 – Company N
Company N is producing a high-end TV programme. The programme is partly set in Switzerland and is filmed on location, meaning only 60% of relevant global expenditure on the programme is UK expenditure and the 80% cap does not apply.
The programme is produced across two accounting periods: the year ended 31 December 2024 (AP1) and the year ended 31 December 2025 (AP2). Company N claimed High-End Television Tax Relief on the programme for AP1. Company N transitions the programme to the Audio-Visual Expenditure Credit (AVEC) for AP2. The programme is completed in AP2.
The expenditure totals on the programme are:
| Description | AP1 (£) | AP2 (£) | Total (£) |
|---|---|---|---|
| Overall relevant global expenditure | 8,000,000 | 12,000,000 | 20,000,000 |
| Non-UK expenditure | 3,000,000 | 5,000,000 | 8,000,000 |
| Relevant VFX expenditure | - | 1,000,000 | 1,000,000 |
Non-UK expenditure and relevant VFX expenditure are both part of the overall relevant global expenditure.
For AP2, Company N claims a Chapter 3 AVEC credit on its relevant global expenditure, including its relevant VFX expenditure. The Chapter 3 credit is calculated using the steps in section 1179CA(1) and is £2,380,000.
Because AP2 is the completion period, Company N also claims additional VFX credit for that period. Because it has claimed a Chapter 3 credit on the programme, Company N first needs to calculate the adjusted VFX portion of that Chapter 3 credit, then use the adjusted VFX portion to find the additional VFX credit.
Calculate adjusted VFX portion
Step 1 – identify UK expenditure in the AVEC period
The AVEC period does not include AP1, when Company N was claiming High-End Television Tax Relief on the programme. Therefore, relevant global expenditure in the AVEC period is just the £12,000,000 incurred in AP2.
The amount of
UK expenditure = £12,000,000 – £5,000,000 non-UK expenditure = £7,000,000.
Step 2 – identify how much of the result of step 1 is relevant VFX expenditure
This is all
the relevant VFX expenditure on the production: £1,000,000.
Step 3 – determine whether the 80% cap applied and, if so, the amount of the reduction made by the cap
AP2 is the most recent (and indeed only) accounting period for which Company N claimed a Chapter 3 credit. For AP2, the 80% cap did not apply. This is because UK relevant global expenditure to date is less than 80% of total relevant global expenditure to date:
UK relevant global expenditure = £20,000,000 – £8,000,000 non-UK expenditure = £12,000,000
80% of total relevant global expenditure = £20,000,000 x 80% = £16,000,000
Because the
cap did not apply, the reduction made by the cap is zero. Because the result of
step 3 is zero, Company N continues to step 4.
Step 4 – find the proportion of UK expenditure in the AVEC period that is relevant VFX expenditure, and apply it to the sum of Chapter 3 credits
Company N has only claimed one Chapter 3 credit so far, so the sum of Chapter 3 credits is £2,380,000.
Divide the result of step 2 by the result of step 1:
£1,000,000 ÷ £7,000,000 = 0.1428…
Multiply that result by the sum of Chapter 3 credits:
0.1428… x £2,380,000 = £340,000
The adjusted
VFX portion is therefore £340,000. There is no need to continue to steps 5 and
6.
Step 5 – does not apply
Step 6 – does not apply
Calculate additional VFX credit
Now that Company N knows the adjusted VFX portion, it can calculate the additional VFX credit. The additional credit for relevant VFX expenditure is:
| Description | Amount (£) | Amount (£) |
|---|---|---|
| £1,000,000 relevant VFX expenditure x 39% | 390,000 | |
| Minus adjusted VFX portion | (340,000) | |
| Minus additional VFX credit previously claimed | - | |
| Total deductions | (340,000) | |
| Additional VFX credit for AP2 | 50,000 |
Company N's total AVEC for AP2 is £2,380,000 Chapter 3 credit plus £50,000 additional VFX credit.