CREC071200 - Expenditure credit redemption: Step 1

S1179CC CTA 2009听

Note: For this Step and all later Steps, only the amount of credit arising in the current accounting period can be used. Amounts of credit surrendered by group members or brought forward from previous听accounting periods cannot be used 鈥� they are used at the pre-Step 1 restriction (CREC071100) or surrendered to group members (CREC071400).听

The amount of expenditure credit is used to discharge the production company鈥檚 liability to corporation tax (CT) for the current accounting period. Any amount remaining听is carried forward to Step 2.听

When a CT liability is discharged, the CT liability itself is not reduced. Rather, the amount the company has to听pay for the liability is reduced.听

Example 1:听

Production Company A has a total amount of expenditure credit of 拢300,000 and a CT liability of 拢100,000.听

At Step 1, the CT liability is fully discharged and reduced to nil. Production Company A has 拢200,000 of credit remaining听to carry forward to Step 2.听

Example 2:听

Production Company B has a total amount of expenditure credit of 拢400,000 and a CT liability of 拢550,000.听

At Step 1, the CT liability is partially discharged and reduced to 拢150,000. Production Company B has no credit remaining听to carry forward to Step 2 as it has been fully used up.


What CT is charged听on听

CT is charged on the production company鈥檚 profit from its separate production trade(s), plus the total amount of any expenditure credits听to which it is entitled.听This is because the company must add the amount of Audio-Visual听or Video Games Expenditure Credit due on a production to its profits for that production鈥檚 separate trade, in accordance with听section 1179CB of Corporation Tax Act听(CTA) 2009.听

Note: the total amount of expenditure credit which must be added on to profit/loss as a taxable receipt is the amount of expenditure credit before any redemption Steps are applied. This ensures that the credit is taxed properly.听

If the company makes a loss, the expenditure credit is still added on and can reduce or extinguish the loss. If the company still makes a loss after adding on the expenditure credit, it will have no CT liability to discharge at Step 1.听