CREC071200 - Expenditure credit redemption: Step 1

S1179CC CTA 2009 

Note: For this Step and all later Steps, only the amount of credit arising in the current accounting period can be used. Amounts of credit surrendered by group members or brought forward from previous accounting periods cannot be used – they are used at the pre-Step 1 restriction (CREC071100) or surrendered to group members (CREC071400). 

The amount of expenditure credit is used to discharge the production company’s liability to corporation tax (CT) for the current accounting period. Any amount remaining is carried forward to Step 2. 

When a CT liability is discharged, the CT liability itself is not reduced. Rather, the amount the company has to pay for the liability is reduced. 

Example 1: 

Production Company A has a total amount of expenditure credit of £300,000 and a CT liability of £100,000. 

At Step 1, the CT liability is fully discharged and reduced to nil. Production Company A has £200,000 of credit remaining to carry forward to Step 2. 

Example 2: 

Production Company B has a total amount of expenditure credit of £400,000 and a CT liability of £550,000. 

At Step 1, the CT liability is partially discharged and reduced to £150,000. Production Company B has no credit remaining to carry forward to Step 2 as it has been fully used up.

What CT is charged on 

CT is charged on the production company’s profit from its separate production trade(s), plus the total amount of any expenditure credits to which it is entitled. This is because the company must add the amount of Audio-Visual or Video Games Expenditure Credit due on a production to its profits for that production’s separate trade, in accordance with section 1179CB of Corporation Tax Act (CTA) 2009. 

Note: the total amount of expenditure credit which must be added on to profit/loss as a taxable receipt is the amount of expenditure credit before any redemption Steps are applied. This ensures that the credit is taxed properly. 

If the company makes a loss, the expenditure credit is still added on and can reduce or extinguish the loss. If the company still makes a loss after adding on the expenditure credit, it will have no CT liability to discharge at Step 1.