CREC061450 - Expenditure credit calculation: additional credit for visual effects costs: additional VFX credit calculation example 2
Example 2 – Company W
Company W is producing a film which is not an animation or an independent film. It therefore qualifies for additional credit for relevant VFX expenditure. 90% of relevant global expenditure on the film is UK expenditure, meaning the 80% cap applies.
The film is produced across two accounting periods: the year ended 31 March 2026 (AP1) and the year ended 31 March 2027 (AP2). Company W claims AVEC on the film for both periods. The film is completed in AP2.
The expenditure totals on the film are:
| Description | AP1 (£) | AP2 (£) | Total (£) |
|---|---|---|---|
| Overall relevant global expenditure | 25,000,000 | 15,000,000 | 40,000,000 |
| Non-UK expenditure | 2,000,000 | 2,000,000 | 4,000,000 |
| Relevant VFX expenditure | 1,000,000 | 5,000,000 | 6,000,000 |
Non-UK expenditure and relevant VFX expenditure are both part of the overall relevant global expenditure.
Company W claims Chapter 3 AVEC credits for AP1 and AP2 on its relevant global expenditure, including its relevant VFX expenditure. The Chapter 3 credits are calculated using the steps in section 1179CA(1). For AP1, the credit is £6,800,000 and for AP2 it is £4,080,000.
Because AP2 is the completion period, Company W also claims additional VFX credit for that period. Because it has claimed Chapter 3 credits on the film, Company W first needs to calculate the adjusted VFX portion of those Chapter 3 credits, 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 covers both AP1 and AP2. Therefore, relevant global expenditure in the AVEC period is the £40,000,000 total relevant global expenditure across both periods.
The amount of
UK expenditure = £40,000,000 – £4,000,000 non-UK expenditure = £36,000,000.
Step 2 – identify how much of the result of step 1 is relevant VFX expenditure
This is the
relevant VFX expenditure on the production across both periods: £6,000,000.
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 accounting period for which Company W claimed a Chapter 3 credit. For AP2, the 80% cap did apply. This is because UK relevant global expenditure to date is more than 80% of total relevant global expenditure to date:
UK relevant global expenditure = £40,000,000 – £4,000,000 non-UK expenditure = £36,000,000
80% of total relevant global expenditure = £40,000,000 x 80% = £32,000,000
The reduction made by the cap is the difference between the two figures:
£36,000,000 - £32,000,000 = £4,000,000
Because the
result of this step is positive, Company W skips to step 5.
Step 4 – does not apply
Step 5 – subtract the reduction made by the cap (the result of step 3) from relevant VFX expenditure (the result of step 2)
£6,000,000 relevant VFX expenditure - £4,000,000 cap reduction = £2,000,000
Because the
result of this step is positive, Company W continues to step 6.
Step 6 – multiply VFX expenditure not excluded by the cap (the result of step 5) by 34%
£2,000,000 x 0.34 = £680,000
The adjusted VFX portion is therefore £680,000.
Calculate additional VFX credit
Now that Company W knows the adjusted VFX portion, it can calculate the additional VFX credit. The additional credit for relevant VFX expenditure is:
| Description | Amount (£) | Amount (£) |
|---|---|---|
| £6,000,000 relevant VFX expenditure x 39% | 2,340,000 | |
| Minus adjusted VFX portion | (680,000) | |
| Minus additional VFX credit previously claimed | - | |
| Total deductions | (680,000) | |
| Additional VFX credit for AP2 | 1,660,000 |
Company W's total AVEC for AP2 is £4,080,000 Chapter 3 credit plus £1,660,000 additional VFX credit.