CREC031200 - Taxation: separate trade: commencement

Section 1179BA Corporation Tax Act (CTA)听2009听

If a company intends to claim an Audio-Visual or Video Games Expenditure Credit (AVEC听or VGEC)听in respect of a film, TV programme听or video game, the production is treated as a separate trade. This isolates the development of each individual production for the purpose of calculating profits or losses.听

The听normal rules for deciding when a trade commences听do not apply when deciding when a separate programme听trade commences. Special rules apply instead.听

Once the separate trade has commenced, the normal rules apply for when a trade ceases.听

听

Films and TV programmes 鈥� section 1179DW CTA 2009听

The production company听is treated as commencing听a new trade听in respect of a film or TV programme听when:听

  • pre-production听of the film or programme听begins, or听

  • the company receives income from the film or programme,听

whichever is earlier.听

Commencement triggered by pre-production expenditure听

In many cases, the trade will commence听when the film or programme听begins pre-production.听

This means that as soon as the production company begins to incur pre-production expenditure on the film or听programme, a separate trade relating only to that production begins. Income and expenditure relating to the production is then accounted for in relation to that trade using the Chapter听2 Part 14A听rules听(CREC035000).听

See CREC034000听for how development costs can be brought into the programme听trade.听

The different phases听of film and TV听programme听production (CREC010400) are not necessarily sequential and may well overlap or be out of order.听

For example, some post-production work will precede principal photography. In addition, significant amounts of work at the pre-production stage may have occurred before the development stage has finished.听

With film and TV programmes,听it is normal for expenditure on pre-production activities to trigger the commencement of the programme听trade while development expenditure is still being incurred.听

Commencement triggered by receipt of income听

In some cases, the trade will commence听before pre-production starts if the production company听receives income relating to the film or programme听(see CREC036100). For example, the commencement of the trade may be triggered when a production company receives a grant to help fund development activity.听

This ensures that all production听income is taxable as trading income. This income will be offset by pre-trading expenditure brought into account on the commencement of the trade.听However, it may produce taxable profits if insufficient expenditure has been incurred by the end of the accounting period.听

The fact that the production听company has commenced听the separate trade due to receiving production income does not mean that pre-production has commenced.听


Video games 鈥� section 1179FO CTA 2009听

The development company is treated as commencing听a new trade in respect of a video game when:听

  • design of the game begins, or听

  • the company receives income from the video game,听

whichever is earlier.听

Commencement triggered by design expenditure听

In many cases, the trade will commence听when the development company begins designing the video game (CREC010500).听

This means that as soon as the development company begins to incur design expenditure on the video game, a separate video game trade relating to that video game begins. Income and expenditure relating to the video game is then accounted for in relation to that trade using the Chapter 2 Part 14A rules听(CREC035000).听

See CREC034000听for how development costs can be brought into the video game trade.听

Commencement triggered by receipt of income听

In some cases, the trade will commence听before design starts if the development company receives income relating to the video game (see CREC036100). For example, the commencement of the trade may be triggered when a development company receives a grant to help fund development activity.听

This ensures that all video game income is taxable as trading income. This income will be offset by pre-trading expenditure brought into account on the commencement of the trade.听However, it may produce taxable profits if insufficient expenditure has been incurred by the end of the accounting period.听

The fact that the development company has commenced听trade听due to receiving income from the video game听does not mean that the design phase has commenced.听


Trades commencing听before the opt-in period听

If, according to the special rules, a separate trade commences听in an accounting period before the opt-in period (CREC031100), the company must amend its tax return(s)听to apply the separate trade rules for:听

  • the period of commencement听

  • any other accounting period between the commencement period and the opt-in period.听

The normal time limit for amending a tax return does not apply where an amendment needs to be made for this reason听鈥� the legislation is in section 1179AC CTA 2009.听However, the time limit for making a claim to relief still applies as normal (see CREC085000).