VGDC55050 - Calculation: additional deduction - multi-period developments
S1217CG Corporation Tax Act 2009
Where the development of a video game covers more than one period of account, Video Games Tax Relief (VGTR) operates on a cumulative basis. This means that:
- In the first period of account the level of the Video Games Development Company’s (VGDC’s) enhanceable expenditure is determined by the amount of core expenditure incurred within that period.
- In subsequent periods of account, including the final period, the level of the enhanceable expenditure is calculated by reference to total expenditure incurred by the VGDC to date, taking account of VGTR received in earlier periods.
Example: development continues for several periods
A VGDC makes a video game with total core expenditure of £1m, of which 75% is incurred on video game development in the UK/EEA, and 25% incurred on video game development outside the UK/EEA. The video game is produced over three years.
The VGDC is eligible for VGTR and the rate of enhancement is 100% (VGDC55030).
Over the three accounting periods, the profile of core expenditure is:
| European (£k) | Non- European (£k) | Total Cumulative (£k) | |
|---|---|---|---|
| First period | 350 | 0 | 350 |
| Second period | 350 | 100 | 800 |
| Third period | 50 | 150 | 1,000 |
| Total expenditure | 750 | 250 | 1,000 |
First Period
In the first period of account, because all the core expenditure is European core expenditure, VGTR is calculated on the basis of 80% of the total core expenditure, or £280k (= 80% x £350k). The additional deduction is therefore £280k.
Second period
At the end of the second period of account, the total core expenditure to date is £800k, of which £700k is European core expenditure. Because European core expenditure is greater than 80% of total core expenditure (80% x £800k = £640k), VGTR is provided on the basis of 80% of the total core expenditure incurred to date. The additional deduction is £640k.
However, £280k of VGTR has been claimed in the previous accounting period, leaving £360k (= £640k less £280k) to be claimed in the second period.
Third period
At the end of the third period of account, total core expenditure is £1m, of which £750k is European core expenditure. Because European core expenditure is less than 80% of the total core expenditure, the VGDC is eligible for VGTR on the full £750k. The additional deduction is therefore £750k.
Because an additional deduction of £640k has been claimed to date, this leaves £110k (= £750k less £640k) to be claimed in the third accounting period.
Cumulative effect
The cumulative effect at the end of the three periods of account is that VGTR is provided on the 75% of core expenditure that was also European expenditure.
Summary
| Period 1 | Period 2 | Period 3 | |
|---|---|---|---|
| European Core Expenditure (cumulative) | £350k | £700k | £750k |
| Non-European Core Expenditure (cumulative) | £nil | £100k | £250k |
| Total Core Expenditure (cumulative) | £350k | £800k | £1m |
| European core expenditure as percentage of total | 100% | 87.5% | 75% |
| Enhanceable expenditure to end of period (lesser of: European core expenditure, and 80% of total) | £280k (80% of total) | £640k (80% of total) | £750k (European core) |
| Additional deduction to end of period | £280k | £640k | £750k |
| Less additional deduction claimed for earlier period(s) | - | (£280k) | (£640k) |
| Additional deduction due for the period | £280k | £360k | £110k |