CREC092200 - Commencement and transition: continuity
The separate trade
If a company carries on a separate trade in relation to a production under one of the former tax reliefs and carries on a separate trade in relation to the same production after opting it in to AVEC or VGEC, the second trade is treated as a continuation of the first. In most cases, companies do not need to do anything to give effect to this.
However, if the beginning of the accounting period in which the company opts the production in to AVEC or VGEC is not also the beginning of a new period of account, a new period of account is to be treated as beginning at the same time as the opt in accounting period specifically for the purposes of calculating profit in accordance with:
section 1189 CTA 2009, for Film Tax Relief
section 1216BA, for the television tax reliefs
section 1217BA, for Video Games tax relief
Section 1179BB, for AVEC and VGEC
This ensures that there are separate profit figures for the period under the relevant former tax relief and the period under AVEC/VGEC.
A company’s period of account is the period for which it prepares its accounts. It can be over 12 months long. A company’s accounting period is the period covered by its tax return. It cannot be longer than 12 months, so when a company has a period of account of over 12 months it must apportion it between multiple accounting periods. There is more guidance on gov.uk.
This means that the above rule will generally only affect companies with a period of account which is over 12 months long.
Example
Company A has a 24-month period of account from 1 April 2023 to 31 March 2025. For corporation tax purposes, it must split it into two accounting periods of 12 months each. AP1 is the period from 1 April 2023 to 31 March 2024, and AP2 is the period from 1 April 2024 to 31 March 2025.
Company A is producing a video game. It claims VGTR on the game in AP1, then opts it in to VGEC in AP2.
When AP2 begins, it is the beginning of a new accounting period, but it is not the beginning of a new period of account. Usually, this would mean that Company A calculates the profit of the separate video game trade for the entire period of account and apportions it between the two APs. However, because Company A has opted in to VGEC from the beginning of AP2, it must treat the beginning of AP2 as the beginning of a new period of account and calculate profit for AP1 and AP2 separately.
Calculation of expenditure credit amount
The amount of expenditure credit due on a production is based on a percentage of qualifying expenditure for the period.
Qualifying expenditure for the period is calculated on a cumulative basis: qualifying expenditure incurred at the end of the last period in which a claim was made (capped at the lower of 80% or UK expenditure) is deducted from qualifying expenditure incurred to date (also capped).
The cumulative basis of calculation carries over when a production opts in to AVEC or VGEC. When a company calculates qualifying expenditure for the period under AVEC or VGEC, it must include any qualifying expenditure previously incurred under the relevant former tax relief for the purposes of Step 1 and Step 4 of section 1179CA CTA 2009.
Example
Company B is in its first period of claiming AVEC for a film, having claimed for the same film under Film Tax Relief in the previous accounting period.
At the end of the previous accounting period, it had incurred £500,000 qualifying expenditure to date. As this was all UK expenditure, it was capped at £400,000.
In the current period, Company B has incurred a further £100,000 qualifying expenditure, again all UK expenditure, giving it £600,000 qualifying expenditure incurred to date, also known as relevant global expenditure. It is capped at £480,000.
To calculate qualifying expenditure for the period under AVEC, Company B must deduct qualifying expenditure incurred to date in the last accounting period in which it made a claim from qualifying expenditure incurred to date in the current period. It should include amounts incurred under Film Tax Relief.
Therefore, qualifying expenditure for the period is:
Qualifying expenditure incurred to date in the current period (relevant global expenditure), capped |
£480,000 |
Less Qualifying expenditure incurred to date in the last period in which a claim was made, capped |
(£400,000) |
Qualifying expenditure for the period |
£80,000 |
For the general rules for calculating the amount of expenditure credit, see CREC060000.
British Film Institute cultural certificates
Certificates issued for productions in order to claim the former tax reliefs continue to have effect for AVEC or VGEC. Equally, final certificates issued under AVEC or VGEC have effect for the former tax reliefs.
If a certificate issued in order to claim the former tax reliefs is revoked, relief will not be available under AVEC or VGEC.
Transfer of terminal losses
Terminal losses upon cessation of a separate trade can be transferred between productions even if one is claiming under a former tax relief and the other under AVEC/VGEC, provided the basic conditions to transfer are met (CREC043000).
The terminal loss rules of the relief which applies to the production receiving the loss take priority over the rules of the relief which applies to the production surrendering the loss. AVEC allows for terminal losses of a film trade to be transferred to a TV programme trade, and vice versa, but Film Tax Relief and the television tax reliefs do not.
This means that the transfer of a terminal loss from a film production trade to a TV programme production trade, and vice versa, is only possible where the recipient production is claiming under AVEC. If the terminal loss is transferred from an AVEC production to a production claiming one of the old reliefs, it must be in respect of a trade of the exact same type.