(1) This section applies in relation to a qualifying film or qualifying television programme.
(2) The production company is entitled to claim an additional amount of audiovisual expenditure credit for an accounting period (“the claim period”) that is the completion period (see section 1179DY) or a subsequent accounting period if—
(a) the company has incurred relevant visual effects expenditure on the film or programme in that period or an earlier accounting period, ...
(aa) a claim for Chapter 3 credit has been made for the last accounting period in the AVEC period (which may be the claim period) in which the company incurred relevant global expenditure (see section 1179CA(2)) that is UK expenditure (see section 1179AB), and
(b) ... the relevant percentage for the purposes of all Chapter 3 credit claims in respect of the film or television programme was the percentage given by subsection (2) or (5) of section 1179DV.
(3) The additional amount is equal to—
(a) 39% of the total amount of the relevant visual effects expenditure incurred on the film or programme in the claim period and in previous periods, less
(b) the sum of—
(i) the adjusted VFX portion of Chapter 3 credits claimed in respect of the film or television programme, and
(ii) any additional amounts of audiovisual expenditure credit previously claimed under this section.
(4) Take the following steps to determine the adjusted VFX portion of Chapter 3 credits claimed in respect of the film or television programme—
Step 1 (identify the total UK expenditure in the AVEC period)
Determine the total amount of the company’s relevant global expenditure ... that—
is UK expenditure ..., and
was incurred for accounting periods falling within the company’s AVEC period.
Step 2 (identify the amount of visual effects expenditure)
Determine how much of the result of Step 1 is relevant visual effects expenditure.
Step 3 (determine the extent to which the 80% cap applied)
Determine the amount (if any) of the excess to be deducted at Step 3 in section 1179CA(1) for the most recent accounting period for which a claim for Chapter 3 credit was made (which may be the claim period).
If that amount is nil go to Step 4, otherwise go to Step 5.
Step 4 (where the 80% cap did not apply, calculate the adjusted VFX portion)
If this Step applies, the adjusted VFX portion is the amount given by multiplying—
the sum of Chapter 3 credits claimed by the production company, by
the amount given by dividing the result of Step 2 by the result of Step 1.
Step 5 (treat the 80% cap as affecting the VFX portion first)
Subtract the result of Step 3 from the result of Step 2.
If the result is nil or less, the adjusted VFX portion is nil. If not, go to Step 6.
Step 6 (calculate the adjusted VFX portion, taking account of the 80% cap)
If this Step applies, the adjusted VFX portion is the amount given by multiplying the result of Step 5 by 0.34.
(5) The Treasury may by regulations replace—
(a) the percentage for the time being specified in subsection (3)(a), or
(b) the number for the time being specified in Step 6 in subsection (4) as the number by which the result of Step 5 in that subsection is multiplied.
(6) Sections 1179C and 1179CB to 1179CI (treatment of expenditure credits) apply to the additional amount as they apply to an expenditure credit under Chapter 3.
(6A) Where a production company has claimed an additional amount of audiovisual expenditure credit for an accounting period and makes a claim for Chapter 3 credit for a subsequent accounting period—
(a) the additional amount is to be calculated for that subsequent accounting period, and
(b) if that additional amount is negative, the amount of Chapter 3 credit to which the company is entitled for that period is to be reduced by the additional amount.
(6B) Where Chapter 3 credit claimed by a company for an accounting period is reduced as a result of subsection (6A)(b), for the purposes of the application of subsections (3) and (4) in relation to the company for any subsequent accounting period—
(a) the sum of the additional amounts of audiovisual expenditure credit previously claimed (as referred to in subsection (3)(b)(ii)) is to be reduced by the additional amount referred to in subsection (6A)(b), and
(b) in determining the sum of Chapter 3 credits claimed by the production company for the purposes of Step 4 in subsection (4), ignore the reduction of any Chapter 3 credit resulting from the application of subsection (6A)(b).
(7) In this section—
a company’s “AVEC period” means the period beginning with the commencement of the first accounting period for which this Part applies further to the election by the company under section 1179B(1) and ending with the end of the claim period;
“Chapter 3 credit” means an audiovisual expenditure credit in respect of the film or television programme determined under section 1179CA;
“relevant visual effects expenditure” means UK expenditure that—
is incurred in respect of relevant visual effects work carried out in the United Kingdom, and
counts as relevant production expenditure for the purposes of section 1179CA(2) (see section 1179DR);
“relevant visual effects work” means work consisting of the use of computer technology to create or alter images for inclusion in the film or programme.
1179F Application of Chapters 2 and 3 to video games
(1) For the purposes of this Part—
(a) a qualifying video game (see section 1179FA) is a qualifying production, and
(b) the development company for a qualifying video game (see section 1179FI) is the qualifying company for that video game.
(2) The following provisions of this Chapter apply for the purposes of this Part in relation to video games.
(3) Expenditure credit under Chapter 3 is called “video game expenditure credit” when the entitlement to it arises in respect of a video game.
1179FA Video games that are qualifying video games
(1) A video game is a qualifying video game if—
(a) it is not an excluded game (see subsection (2)),
(b) it meets the intended supply condition (see section 1179FB),
(c) it meets the British certification condition (see section 1179FC), and
(d) it meets the UK expenditure condition (see section 1179FH).
(2) A video game is an excluded game if it is produced for—
(a) advertising or promotional purposes, or
(b) the purposes of gambling, within the meaning of the Gambling Act 2005.
(1) A video game meets the intended supply condition if it is intended for supply to the general public.
(2) If the video game does not meet that condition in an accounting period after the opt-in period, it cannot meet it in any subsequent accounting period.
1179FC British certification condition: provisional and final satisfaction
(1) In this section, references to a certificate are to a certificate under section 1179FF.
(2) A video game meets the British certification condition in a pre-completion period (see section 1179FQ) if the production company’s company tax return for the period is accompanied by a valid interim certificate.
(3) A video game meets the British certification condition in the completion period (see section 1179FQ) and any subsequent accounting period if—
(a) the production company’s company tax return for the completion period is accompanied by a valid final certificate, or
(b) the production company has abandoned production activities in relation to the video game and the production company’s company tax return for the completion period is accompanied by a valid interim certificate.
(4) Subsections (2) and (3) are subject to subsections (5) and (6).
(5) If a video game does not meet the British certification condition in the completion period, it is no longer to be regarded as having done so (nor, therefore, as being a qualifying video game) in any pre-completion period.
(6) If a certificate is revoked after the production company’s company tax return for a period is submitted, the video game in question is no longer to be regarded as having met the British certification condition (nor, therefore, as being a qualifying video game) in that period in reliance on that certificate.
(7) Subsection (6) does not apply to the extent that a direction under section 1179FF provides that the certificate is to be treated as having effect.
(8) For the purposes of this section, a certificate is valid if it has effect on the day on which the production company’s company tax return is submitted.
(1) The Secretary of State, with the approval of the Treasury, may by regulations specify conditions which must be met by a video game before it may be certified as a British video game.
(2) Such regulations may—
(a) specify different conditions in relation to different descriptions of video game;
(b) provide that certain descriptions of video game may not be certified as a British video game;
(c) enable the Secretary of State to direct that any provision made by virtue of paragraph (b) does not apply to a video game that meets certain conditions.
(1) The development company for a video game may apply to the Secretary of State for a certificate under section 1179FF in relation to the programme.
(2) An application may be for an interim certificate or a final certificate.
(3) An interim certificate is a certificate that—
(a) is granted before the video game is completed (see section 1179FS), and
(b) states that the video game, if completed in accordance with the proposals set out in the application, will be a British video game.
(4) A final certificate is a certificate that—
(a) is granted after the video game is completed, and
(b) states that the video game is a British video game.
(5) The Secretary of State may require an applicant to provide documents or information to assist the Secretary of State in determining the application.
(6) The Secretary of State may require information provided for the purposes of an application to be accompanied by a statutory declaration, made by the person providing it, as to the truth of the information.
(7) The Secretary of State may by regulations make provision supplementing this section, including—
(a) provision about the form of applications,
(b) provision about the particulars and evidence necessary for satisfying the Secretary of State that a video game meets any conditions that apply by virtue of section 1179FD, and
(c) provision that any statutory declaration which is required by subsection (6) to be made by any person may be made on the person’s behalf by such person as is specified in the regulations.
(1) If—
(a) an application is made in accordance with section 1179FE, and
(b) the Secretary of State is satisfied that the video game concerned meets any conditions that apply by virtue of section 1179FD,
the Secretary of State must certify the video game accordingly.
(2) An interim certificate—
(a) may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met, and
(b) may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period.
(3) If it appears to the Secretary of State that a video game certified under this section ought not to have been certified, the Secretary of State may revoke the certificate.
(4) Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect.
1179FG Disclosure of information for certification purposes
Section 1179DN (disapplication of section 18, and application of section 19, of the Commissioners for Revenue and Customs Act 2005) has effect in relation to the Secretary of State’s functions under sections 1179FD to 1179FF as it has effect in relation to the Secretary of State’s functions under sections 1179DK to 1179DM.
(1) A video game meets the UK expenditure condition in a pre-completion period (see section 1179FQ) if—
(a) the development company’s company tax return for the period states—
(i) the total amount of core expenditure that is expected to be incurred in relation to the video game, and
(ii) the amount of that expenditure that is expected to be UK expenditure, and
(b) the second of those amounts is at least 10% of the first.
(2) A video game meets the UK expenditure condition in the completion period (see section 1179FQ) and any subsequent accounting period if—
(a) the development company’s company tax return for the completion period states—
(i) the total amount of core expenditure that has been incurred in relation to the video game, and
(ii) the amount of that expenditure that is UK expenditure, and
(b) the second of those amounts is at least 10% of the first.
(3) Subsection (1) is subject to subsections (4) and (5).
(4) If a video game does not meet the UK expenditure condition in a pre-completion period, it is no longer to be regarded as having done so (nor, therefore, as being a qualifying video game) in any previous accounting period by virtue of subsection (1) as it applies to that previous period.
(5) If a video game does not meet the UK expenditure condition in the completion period, it is no longer to be regarded as having done so (nor, therefore, as being a qualifying video game) in any pre-completion period.
(6) References in this section to core expenditure are to core expenditure incurred by the development company.
(7) The Treasury may by regulations amend the percentage specified in subsection (1) or (2).
(1) A company is the development company for a video game if—
(a) it is responsible for designing, producing and testing the video game,
(b) it is actively engaged in planning and decision-making during the design, production and testing of the video game,
(c) it directly negotiates, contracts and pays for rights, goods and services in relation to the video game, and
(d) it is more directly engaged in the matters described in paragraphs (a) to (c), taken as a whole, than any other company that satisfies those paragraphs.
(2) Activities carried on in partnership are to be ignored in determining whether a company is the development company for a video game.
Expenditure incurred by the development company for a video game counts as “relevant production expenditure” for the purposes of section 1179CA(2) if—
(a) it is core expenditure in relation to that video game (see section 1179FK), and
(b) it is not excluded expenditure (see sections 1179FL and 1179FM).
(1) Expenditure is “core expenditure” in relation to a video game if it is expenditure on designing, producing or testing the video game.
(2) But core expenditure does not include expenditure on—
(a) designing the initial concept for a video game, or
(b) debugging, or carrying out maintenance in connection with, a completed video game.
1179FL Excluded expenditure: research and development and unpaid amounts
(1) Expenditure is excluded expenditure to the extent that the development company would, in respect of the expenditure, be able to claim—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) relief under Part 13 (relief in respect of expenditure on research and development).
(2) Expenditure is excluded expenditure for an accounting period to the extent that it is not paid before the end of the period of four months beginning with the first day after the final day of the accounting period.
1179FM Excluded expenditure: non-arm’s-length dealings with connected parties
(1) Expenditure is excluded expenditure to the extent that it represents connected party profit, unless subsection (3) applies.
(2) For the purposes of subsection (1), expenditure represents connected party profit—
(a) if it is a payment to a person (“C”) in exchange for something supplied by that person,
(b) if the development company is connected with C, and
(c) if, and to the extent that, the amount of the payment exceeds the expenditure incurred by C in supplying that thing.
(3) This subsection applies if the amount of the payment is no more than would have been the case had the transaction been entered into at arm’s length.
(4) A transaction would have been entered into “at arm’s length” if it made “the arm’s length provision” within the meaning of Part 4 of TIOPA 2010 (and for this purpose any limitation on the application of that Part is to be disregarded).
(5) Subsections (6) and (7) apply if—
(a) the supply by C to the development company is one of a sequence of transactions in which the thing supplied has been supplied by one person to another, and
(b) either—
(i) each transacting party in the sequence is connected to at least one other transacting party in the sequence, or
(ii) each transaction in the sequence is entered into in furtherance of a single scheme or arrangement (of whatever kind, and whether or not legally enforceable).
(6) The reference to C in subsection (2)(c) is to be read as a reference to the supplier in the first transaction in the sequence.
(7) The reference to the transaction in subsection (3) is to be read as including each transaction in the sequence.
(8) In this section, “payment” includes any transfer of value.
1179FN Percentage of qualifying expenditure translated into credit
(1) In relation to a qualifying video game, the relevant percentage for the purposes of step 5 in section 1179CA(1) is 34%.
(2) The Treasury may by regulations replace the percentage for the time being specified in subsection (1) with a different percentage.
For the purposes of section 1179B, the development company for a video game is treated as beginning the separate production trade in respect of the video game—
(a) when the design of the video game begins,
(b) if earlier, when any income from the video game is received by the company.
(1) This section applies for the purposes of section 1179BB as that section applies in relation to a video game.
(2) Expenditure counts towards the costs of the video game if it is expenditure on—
(a) development activities in connection with the video game, or
(b) activities with a view to exploiting the video game.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Receipts count towards the income from the video game if they are receipts in connection with the production or exploitation of the video game, including—
(a) receipts from the sale of the video game or rights in it,
(b) royalties or other payments for use of the video game, or aspects of it (for example, characters or music),
(c) payments for rights to produce games or other merchandise, and
(d) receipts by way of a profit share agreement.
(1) A reference to an accounting period, in relation to a video game, is a reference to an accounting period of the development company for the video game.
(2) A reference to the “completion period”, in relation to a video game, is a reference to the accounting period in which—
(a) the video game is completed (see section 1179FS), or
(b) the development company abandons development activities in relation to the video game.
(3) The development company for a video game must, in its company tax return for the completion period, state whichever of those has occurred.
(4) A reference to a “pre-completion period”, in relation to a video game, is a reference to any accounting period before the completion period in relation to that video game.
(5) In this section, “development company” includes a company that is no longer the development company for the video game but is still carrying on the separate production trade in relation to it.
A video game is “completed” when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and made available to the general public.
(1) This Part is about film production.
(2) Sections 1181 to 1187 contain definitions and other provisions about interpretation that apply for the purposes of this Part.
See, in particular, section 1182 which explains how a company comes to be treated as the film production company in relation to a film.
(3) Chapter 2 is about the taxation of the activities of a film production company and includes—
(a) provision for the company's activities in relation to its film to be treated as a separate trade, and
(b) provision about the calculation of the profits and losses of that trade.
(4) Chapter 3 is about relief (called “film tax relief”) which can be given to a film production company—
(a) by way of additional deductions to be made in calculating the profits or losses of the company's separate trade, or
(b) by way of a payment (a “film tax credit”) to be made on the company's surrender of losses from that trade.
(5) Chapter 4 is about the relief which can be given for losses made by a film production company in its separate trade including provision for certain such losses to be transferred to other separate trades.
(6) Chapter 5 provides—
(a) for relief under Chapters 3 and 4 to be given on a provisional basis, and
(b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met.
(1) This section applies for the purposes of this Part.
(2) “Film” includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture.
(3) Each part of a series of films is treated as a separate film, unless—
(a) the films form a series with not more than 26 parts,
(b) the combined playing time is not more than 26 hours, and
(c) the series constitutes a self-contained work or is a series of documentaries with a common theme,
in which case the films are treated as a single film.
(4) References to a film include the film soundtrack.
(5) A film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.
(1) For the purposes of this Part “film production company” is to be read in accordance with this section.
(2) There cannot be more than one film production company in relation to a film.
(3) A company that (otherwise than in partnership)—
(a) is responsible—
(i) for pre-production, principal photography and post-production of the film, and
(ii) for delivery of the completed film,
(b) is actively engaged in production planning and decision-making during pre-production, principal photography and post-production, and
(c) directly negotiates, contracts and pays for rights, goods and services in relation to the film,
is the film production company in relation to the film.
(4) In relation to a qualifying co-production, a company that (otherwise than in partnership)—
(a) is a co-producer, and
(b) makes an effective creative, technical and artistic contribution to the film,
is the film production company in relation to the film.
(5) If there is more than one company meeting the description in subsection (3) or (4), the company that is most directly engaged in the activities referred to in that subsection is the film production company in relation to the film.
(6) If there is no company meeting the description in subsection (3) or (4), there is no film production company in relation to the film.
(7) A company may elect to be regarded as a company which does not meet the description in subsection (3) or (4).
(8) The election—
(a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and
(b) may be withdrawn by the company only by amending its company tax return for that accounting period.
(9) The election has effect in relation to films which commence principal photography in that or any subsequent accounting period.
(1) In this Part “film-making activities”, in relation to a film, means the activities involved in development, pre-production, principal photography and post-production of the film.
(2) If all or any of the images in a film are generated by computer, references in this Part to principal photography are to be read as references to, or as including, the generation of those images.
(3) The Treasury may by regulations—
(a) amend subsections (1) and (2),
(b) provide that specified activities are or are not to be regarded as film-making activities or as film-making activities of a particular description, and
(c) provide that, in relation to a specified description of film, references to film-making activities of a particular description are to be read as references to such activities as may be specified.
“Specified” means specified in the regulations.
(1) In this Part “UK expenditure”, in relation to a film, means expenditure on goods or services that are used or consumed in the United Kingdom.
(2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis.
(3) The Treasury may by regulations amend subsection (1).
In this Part—
(a) “qualifying co-production” means a film that falls to be treated as a national film in the United Kingdom as a result of an agreement between Her Majesty's Government in the United Kingdom and any other government, international organisation or authority, and
(b) “co-producer” means a person who is a co-producer for the purposes of the agreement mentioned in paragraph (a).
1188 Activities of film production company treated as a separate trade
(1) This Chapter applies for corporation tax purposes to a company that is the film production company in relation to a film.
(2) The company's activities in relation to the film are treated as a trade separate from any other activities of the company (including any activities in relation to any other film).
(3) In this Chapter the separate trade is called “the separate film trade”.
(4) The company is treated as beginning to carry on the separate film trade—
(a) when pre-production begins, or
(b) if earlier, when any income from the film is received by the company.
1189 Calculation of profits or losses of separate film trade
(1) This section applies for the purpose of calculating the profits or losses of the separate film trade.
(2) For the first period of account the following are brought into account—
(a) as a debit, the costs of the film incurred (and represented in work done) to date, and
(b) as a credit, the proportion of the estimated total income from the film treated as earned at the end of that period.
(3) For subsequent periods of account the following are brought into account—
(a) as a debit, the difference between the amount of the costs of the film incurred (and represented in work done) to date and the corresponding amount for the previous period, and
(b) as a credit, the difference between the proportion of the estimated total income from the film treated as earned at the end of that period and the corresponding amount for the previous period.
(4) The proportion of the estimated total income treated as earned at the end of a period of account is given by—
C
T
×
I
where—
C is the total to date of costs incurred (and represented in work done),
T is the estimated total cost of the film, and
I is the estimated total income from the film.
(1) References in this Chapter to income from the film are to any receipts by the company in connection with the making or exploitation of the film.
(2) This includes—
(a) receipts from the sale of the film or rights in it,
(b) royalties or other payments for use of the film or aspects of it (for example, characters or music),
(c) payments for rights to produce games or other merchandise, and
(d) receipts by the company by way of a profit share agreement.
(3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature.
(1) References in this Chapter to the costs of the film are to expenditure incurred by the company on—
(a) film-making activities in connection with the film, or
(b) activities with a view to exploiting the film.
(2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade.
(3) Expenditure that (apart from this subsection) would be regarded as of a capital nature only because it is incurred on the creation of an asset (the film) is treated as being of a revenue nature.
(1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress.
(2) Accordingly—
(a) payments in advance of work to be done are ignored until the work has been carried out, and
(b) deferred payments are recognised to the extent that the work is represented in the state of completion.
(3) The costs incurred on the film are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.
(4) If an obligation is linked to income being earned from the film, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account.
(1) This section applies if, before the company began to carry on the separate film trade, it incurred expenditure on development of the film.
(2) The expenditure may be treated as expenditure of the separate film trade and as if incurred immediately after the company began to carry on that trade.
(3) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.
(4) Any amendment or assessment necessary to give effect to subsection (3) may be made despite any limitation on the time within which an amendment or assessment may normally be made.
Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances.
(1) This Chapter applies for corporation tax purposes to a company that is the film production company in relation to a film.
(2) Relief under this Chapter (“film tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the film—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(aa) section 1196A (intended release or broadcast),
(b) section 1197 (British film), and
(c) section 1198 (UK expenditure).
(3) Film tax relief is given by way of—
(a) additional deductions (see sections 1199 and 1200), and
(b) film tax credits (see sections 1201 to 1203).
(3A) But film tax relief is not available in respect of any expenditure if—
(a) the company is entitled to an R&D expenditure credit under Chapter 1A of Part 13 in respect of the expenditure, ...
(b) the company has obtained relief under Chapter 2 of Part 13 (relief for loss-making, R&D-intensive SMEs) in respect of the expenditure , or
(c) relief is available to the company under Chapter 3 of Part 15A (television tax relief) in respect of the expenditure.
(4) Sections 1204 to 1207 contain provision about unpaid costs, artificially inflated claims and confidentiality of information.
(5) In this Chapter “the separate film trade” means the company's separate trade in relation to the film (see section 1188).
(6) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for film tax relief.
(1) The film must—
(a) be intended for theatrical release, or
(b) be a television programme intended for broadcast to the general public that meets conditions A to D in section 1216AB (meaning of “relevant programme”).
(2) For this purpose—
(a) “theatrical release” means exhibition to the paying public at the commercial cinema,
(b) a film is not regarded as intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by such exhibition, and
(c) “television programme” has the same meaning as in Part 15A (see section 1216AA).
(3) Whether the condition in subsection (1) is met is determined for each accounting period of the company during which film-making activities are carried on in relation to the film, in accordance with the following rules.
(4) If the condition in subsection (1) is met at the end of an accounting period, it is treated as having been met throughout that period (subject to subsection (5)(b)).
(5) If the condition in subsection (1) is not met at the end of an accounting period—
(a) it is treated as having been not met throughout that period, and
(b) it cannot be met in any subsequent accounting period.
This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition in subsection (1) was met.