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CREC070100 - Expenditure credit redemption: overview

S1179CC CTA 2009 

Total amount of expenditure credit to be redeemed 

Once a production company has calculated the amount of Audio-Visual Expenditure Credit (AVEC) or Video Games Expenditure Credit (VGEC) due on each of its productions, it should add all its Creatives Expenditure Credits together to give the total amount of expenditure credit it is entitled to as a company. 

For example, production company A has the following productions: 

  • A film, which is entitled to AVEC of £500,000 

  • A children’s TV programme, which is entitled to AVEC of £100,000 

  • Two video games, which are entitled to VGEC of £150,000 and £50,000 

The total amount of expenditure credit that Production Company A can redeem is the combined amount of all its productions: £800,000. It does not matter that some of its productions receive AVEC and others receive VGEC. 

The Steps 

A company’s total amount of expenditure credit is redeemed using 6 main Steps. 

  1. It is used to discharge the company’s liability to Corporation Tax (CT) for the current accounting period. 

  2. The amount of credit remaining after Step 1 is reduced to the initial amount of credit (before Step 1) net of a notional tax charge at the main rate of CT. The amount of the reduction is known as the amount withheld at Step 2, and is carried forward to the next accounting period. 

  3. The amount of credit remaining after Step 2 is used to discharge any outstanding CT liabilities the company has for other accounting periods. 

  4. Some or all of the amount of credit remaining after Step 3 can be surrendered to a group member. This Step is optional. 

  5. The amount of credit remaining after Step 4 is used to discharge any other outstanding liabilities of the company to HMRC. 

  6. The amount of credit remaining after Step 5 is paid to the company by HMRC. 

If the company has no credit remaining after any of the Steps, the following Steps are not applied as there is no more credit available to use up. 

The legislation for the Steps can be found in section 1179CC of the Corporation Tax Act 2009. 

Note: the company claiming the expenditure credit cannot transfer or surrender any of the tax liability or the notional tax charge on the credit to another company. Each Step is mandatory (except Step 4) and must be met by the production company itself. 

Amount withheld at Step 2 

The amount of the reduction at Step 2, if any, is the amount withheld at Step 2, or ‘the Step 2 amount’. The company can choose to surrender some or all of this amount to a group member, following the same rules as are used at Step 4. 

Any amount the company does not choose to surrender to a group member is carried forward to the next accounting period (CREC071400).