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Example 2 � Company W

Company W is producing a film which is not an animation or an independent film. It therefore qualifies for additional credit for relevant VFX expenditure. 90% of relevant global expenditure on the film is UK expenditure, meaning the 80% cap applies.

The film is produced across two accounting periods: the year ended 31 March 2026 (AP1) and the year ended 31 March 2027 (AP2). Company W claims AVEC on the film for both periods. The film is completed in AP2.

The expenditure totals on the film are:

Description	AP1 (£)	AP2 (£)	Total (£)
Overall relevant global expenditure	25,000,000	15,000,000	40,000,000
Non-UK expenditure	2,000,000	2,000,000	4,000,000
Relevant VFX expenditure	1,000,000	5,000,000	6,000,000

Non-UK expenditure and relevant VFX expenditure are both part of the overall relevant global expenditure.

Company W claims Chapter 3 AVEC credits for AP1 and AP2 on its relevant global expenditure, including its relevant VFX expenditure. The Chapter 3 credits are calculated using the steps in section 1179CA(1). For AP1, the credit is £6,800,000 and for AP2 it is £4,080,000.

Because AP2 is the completion period, Company W also claims additional VFX credit for that period. Because it has claimed Chapter 3 credits on the film, Company W first needs to calculate the adjusted VFX portion of those Chapter 3 credits, then use the adjusted VFX portion to find the additional VFX credit.

Calculate adjusted VFX portion

Step 1 � identify UK expenditure in the AVEC period

The AVEC period covers both AP1 and AP2. Therefore, relevant global expenditure in the AVEC period is the £40,000,000 total relevant global expenditure across both periods.

The amount of UK expenditure = £40,000,000 � £4,000,000 non-UK expenditure = £36,000,000.

Step 2 � identify how much of the result of step 1 is relevant VFX expenditure

This is the relevant VFX expenditure on the production across both periods: £6,000,000.

Step 3 � determine whether the 80% cap applied and, if so, the amount of the reduction made by the cap

AP2 is the most recent accounting period for which Company W claimed a Chapter 3 credit. For AP2, the 80% cap did apply. This is because UK relevant global expenditure to date is more than 80% of total relevant global expenditure to date:

UK relevant global expenditure = £40,000,000 � £4,000,000 non-UK expenditure = £36,000,000

80% of total relevant global expenditure = £40,000,000 x 80% = £32,000,000

The reduction made by the cap is the difference between the two figures:

£36,000,000 - £32,000,000 = £4,000,000

Because the result of this step is positive, Company W skips to step 5.

Step 4 � does not apply

Step 5 � subtract the reduction made by the cap (the result of step 3) from relevant VFX expenditure (the result of step 2)

£6,000,000 relevant VFX expenditure - £4,000,000 cap reduction = £2,000,000

Because the result of this step is positive, Company W continues to step 6.

Step 6 � multiply VFX expenditure not excluded by the cap (the result of step 5) by 34%

£2,000,000 x 0.34 = £680,000

The adjusted VFX portion is therefore £680,000.

Calculate additional VFX credit

Now that Company W knows the adjusted VFX portion, it can calculate the additional VFX credit. The additional credit for relevant VFX expenditure is:

Description	Amount (£)	Amount (£)
£6,000,000 relevant VFX expenditure x 39%		2,340,000
Minus adjusted VFX portion	(680,000)
Minus additional VFX credit previously claimed	-
Total deductions		(680,000)
Additional VFX credit for AP2		1,660,000

Company W's total AVEC for AP2 is £4,080,000 Chapter 3 credit plus £1,660,000 additional VFX credit.