CREC044200 - Losses: examples: terminal losses applied to new production
A video games听development company (VGDC) develops Video Game 1 and claims VGEC. The separate听trade for the purposes of Part 14A CTA 2009 commences on 3 October 2024 and the VGDC听draws up accounts to 31 December听each year.听
The accounting periods to be considered are听therefore:听
3 October to 31 December 2024听
Year ended 31 December 2025听
Year ended 31 December 2026听
Video Game 1 is completed on 11 March 2025. The company ceases its video game trade in respect of Video Game 1 on 23听October 2025,听when it sells the rights to Video Game 1 outright.听
On 10听April听2025, the VGDC commences a new video game trade in relation to Video Game 2 which also qualifies for VGEC.听
Note: the expenditure credits in this example are calculated on the assumption that UK expenditure is less than 80% of relevant global expenditure. In reality, the听amount of credit due will vary depending on the proportion of UK expenditure. For guidance on how to calculate the amount of expenditure credit due for an accounting period, please see Chapter 6 of this manual.听
The computations for the first period show:听
Period ended 31 December 2024听 |
Video Game 1 (拢)听 |
Video Game 2 (拢)听 |
Other (拢)听 |
Income from the video game听 |
200,000听 |
-听 |
-听 |
Costs of the video game听 |
(1,000,000)听 |
-听 |
-听 |
Expenditure credit (34%)听 |
340,000听 |
-听 |
-听 |
Profit/(loss) on video game听 |
(460,000)听 |
-听 |
-听 |
Other income听鈥� non-trade loan relationship听 |
-听 |
-听 |
15,000听 |
听
The computation shows a trading loss of 拢460,000 on Video Game 1.听As this is a pre-completion period, the loss is restricted and cannot be offset against other income. The interest income (the non-trade loan relationship income) is therefore taxable. The 拢460,000 loss is carried听forward to the next accounting period.听
In the next accounting period, the computations show:听
Period ended 31 December 2025听 |
Video Game 1 (拢)听 |
Video Game 2 (拢)听 |
Other (拢)听 |
Income from the video game听 |
400,000听 |
450,000听 |
-听 |
Costs of the video game听 |
(300,000)听 |
(600,000)听 |
-听 |
Expenditure听credit (34%)听 |
102,000听 |
204,000听 |
-听 |
Profit/(loss) on video game听 |
202,000听 |
54,000听 |
-听 |
Other income听鈥� non-trade loan relationship听 |
-听 |
-听 |
5,000听 |
听
The computation shows a profit of 拢202,000 on Video Game 1 and a profit of 拢54,000 on Video Game 2.听
Since Video Game 1 was completed on 11 March 2025, this is the completion period in respect of Video Game 1. It is also the cessation period of the trade, because听the rights were sold on 23听October 2025.听
The brought forward loss听of 拢460,000 reduces the profit of Video Game 1 for the current period to nil. This leaves an unutilised听loss of 拢258,000听(拢460,000 - 拢202,000).听
As this is the听completion period, the remaining loss听can be:听
set against other profits of the same accounting period (the听拢54,000 trading profit on Video Game 2 and the听拢5,000 non-trade loan relationship income),听
carried back against profits of the accounting period ended 31 December 2024 (the 拢15,000 non-trade loan relationship income),听
surrendered as group relief, if available.听
Any unused loss is carried forward again for set off against profits of the same trade.听
The听VGDC听uses the remaining loss听as follows:听
-听 |
拢听 |
Set against other profits of the same accounting period听(拢54,000 + 拢5,000)听 |
拢59,000听 |
Carried back against profits of the previous听period听 |
拢15,000听 |
Surrendered as group relief听 |
拢20,000听 |
听 |
拢94,000听 |
听
This is the maximum听amount that can be relieved. It leaves nil听total taxable profits for the VGDC in both periods.听There is a 拢164,000听(拢258,000 - 拢94,000)听unused loss remaining.听
This loss would normally be听carried听forward against profits of the same trade.听However, the trade for Video Game 1 ceases in this period, so there are no future periods for the trade. The VGDC claims terminal loss relief under s1179BG, which means听the losses are transferred to the trade of Video Game 2. This trade will therefore treat the 拢164,000听losses as brought forward losses听in the next accounting period.听
The computations for the next period show:听
Period ended 31 December 2026听 |
Video Game 1听鈥� Ceased听(拢)听 |
Video Game 2 (拢)听 |
Other (拢)听 |
Income from the video game听 |
-听 |
300,000听 |
-听 |
Costs of the video game听 |
-听 |
(350,000)听 |
-听 |
Expenditure credit (34%)听 |
-听 |
119,000听 |
-听 |
Profit/(loss)听on video game听 |
-听 |
69,000听 |
-听 |
Other income听鈥� non-trade loan relationship听 |
-听 |
-听 |
50,000听 |
听
The computation for this period shows a trading profit of 拢69,000 for Video Game 2. The losses deemed听to be brought forward of 拢164,000 are utilised听against this profit first.听
The profit is听reduced to nil听and there are 拢95,000听of听losses remaining. They cannot be set against the non-trade loan relationship income because losses transferred under s1179BG can only be used against the profits of the separate trade for Video Game 2.听听
The unused 拢95,000 loss is deemed听to be brought forward for Video Game 2 at the beginning of the next period.听
The following table shows how the losses from Video Game 1 are used in the various accounting periods:听
-听 |
Video Game 1 losses (拢)听 |
Video Game 2 losses (拢)听 |
APE 31/12/2024听 | ||
Development period loss听 |
460,000听 |
-听 |
Losses carried forward into completion period听 |
460,000听 |
-听 |
APE 31/12/2025听 | ||
Losses brought forward听 |
460,000听 |
-听 |
Set off against Video Game 1 profit听 |
(202,000)听 |
-听 |
Set off against NTLR听 |
(5,000)听 |
-听 |
Set off against Video Game 2 profit听 |
(54,000)听 |
听 |
Carried back against NTLR of previous听period听 |
(15,000)听 |
-听 |
Surrendered as group relief听 |
(20,000)听 |
-听 |
Losses carried forward under terminal loss relief rules听 |
164,000听 |
-听 |
APE 31/12/2026听 | ||
Losses brought forward听 |
-听 |
164,000听 |
Utilised听against profits of Video Game 2听 |
-听 |
(69,000)听 |
Losses carried forward听 |
-听 |
95,000听 |