Corporation Tax Act 2009

[F1 Chapter 2 U.K. Special rules about taxation

Textual Amendments

F1 Pt. 14A inserted (22.2.2024) by Finance Act 2024 (c. 3), Sch. 2 para. 1 (with Sch. 2 paras. 16(1), 17-25)

The separate production trade U.K.

1179B Election to tax qualifying production as separate trade U.K.

(1) The qualifying company for a qualifying production may elect in its company tax return for an accounting period for the production to be taxed as a separate trade.

(2) The effect of such an election is that the activities of the company in relation to the production are to be treated for corporation tax purposes as a trade separate from any other activities of the company (including activities in relation to other qualifying productions).

(3) In this Part—

(a) that trade is called “the separate production trade”;

(b) the accounting period to which the return containing the election relates is called “the opt-in period”.

1179BA Duration of separate trade U.K.

(1) When the qualifying company is treated as beginning to carry on the separate production trade is determined by—

(a) section 1179DW, in the case of a film or television programme;

(b) section 1179FO, in the case of a video game.

(2) If the result is that the separate production trade is treated as having been carried on in an accounting period before the opt-in period, any relevant company tax return must be amended so as to give effect to that treatment in that earlier accounting period.

(3) Once a company has made an election under section 1179B(1), the activities of the company in relation to the production are to continue to be treated as a separate trade in accordance with this Chapter even if—

(a) the production ceases to be a qualifying production, or

(b) the company ceases to be the qualifying company for it.

(4) That is the case even if the production ceases to be regarded as a qualifying production in the opt-in period as a result of events after the end of that period.

(5) In the following provisions of this Chapter, “qualifying production” and “qualifying company” are accordingly capable of including productions or companies that used to be so.

Accounting for the separate trade U.K.

1179BB Calculation of profits U.K.

(1) The profits of the separate production trade are to be calculated in accordance with this section.

(2) For the first period of account, the following are to be brought into account—

(a) as a debit, the costs of the qualifying production incurred by the qualifying company to date, and

(b) as a credit, the proportion of the qualifying company’s estimated total income from the qualifying production that is treated as earned at the end of that period.

(3) For subsequent periods of account, the following are to be brought into account—

(a) as a debit, the difference between—

(i) the amount of the costs of the qualifying production incurred by the qualifying company to date, and

(ii) the corresponding amount for the previous period, and

(b) as a credit, the difference between—

(i) the proportion of the qualifying company’s estimated total income from the qualifying production that is treated as earned at the end of that period, and

(ii) the corresponding amount for the previous period.

(4) The proportion of the qualifying company’s estimated total income that is treated as earned at the end of a period of account is given by—

where—

• C is the total of the costs of the qualifying production incurred by the qualifying company to date,

• T is the estimated total cost to the qualifying company of the qualifying production, and

• I is the qualifying company’s estimated total income from the qualifying production.

(5) What counts as costs of, and income from, the qualifying production is determined by—

(a) section 1179DX, in the case of a film or television programme;

(b) section 1179FP, in the case of a video game.

(See also section 1179CB.)

(6) But nothing in this Part, except section 1179BE, allows an amount to count as costs of the qualifying production if it would not generally be allowed as a deduction in calculating the profits of a trade for corporation tax purposes.

(7) Estimates for the purposes of this section must be made—

(a) as at the balance sheet date for each period of account, and

(b) on a just and reasonable basis taking into consideration all relevant circumstances.

(8) Subsection (9) applies if a period of account of the separate production trade does not coincide with an accounting period of the qualifying company.

(9) The expenditure and receipts brought into account for the period under this section, and the resulting profit or loss, are to be apportioned to accounting periods of the company for the purposes of this Part by reference to the number of days in the periods concerned.

1179BC When costs are to be taken as incurred U.K.

(1) For the purposes of section 1179BB, costs are incurred when they are represented in the state of completion of the work in progress.

(2) Accordingly—

(a) payments in advance for work to be done are to be ignored until the work has been carried out, and

(b) deferred payments are to be recognised to the extent that the work is represented in the state of completion.

(3) But an amount that has not been paid is not an incurred cost until there is an unconditional obligation to pay it.

(4) If an obligation is linked to income being earned from the qualifying production, 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.

1179BD Preliminary expenditure U.K.

(1) This section applies if, before the qualifying company began to carry on the separate production trade, it incurred expenditure on the development of the qualifying production.

(2) The expenditure may be treated as expenditure of the separate production trade incurred immediately after the company began to carry on the trade.

(3) If expenditure so treated has previously been taken into account for other tax purposes, any relevant company tax return must be amended accordingly.

1179BE Treatment of certain capital amounts as revenue U.K.

(1) This section applies for corporation tax purposes in relation to the separate production trade.

(2) Expenditure that—

(a) counts as costs of the qualifying production, and

(b) would (apart from this subsection) be regarded as of a capital nature by reason only of being incurred on the creation of an asset in the form of the qualifying production,

is to be treated as expenditure of a revenue nature.

(As to other capital expenditure, see section 53 and section 1179BB(6).)

(3) Receipts that—

(a) count as income from the qualifying production, and

(b) would (apart from this subsection) be regarded as of a capital nature,

are to be treated as receipts of a revenue nature.

Losses in the separate trade U.K.

1179BF Carrying forward of production losses U.K.

(1) This section applies if a company makes a loss in the separate production trade in a pre-completion period (see sections 1179DY and 1179FQ).

(2) The loss is not available for loss relief, except as provided in subsections (3) and (5).

(3) The loss is not prevented from being carried forward under section 45B of CTA 2010 to be deducted from profits of the separate production trade in a subsequent period.

(4) If the loss is so carried forward and deducted, the deduction is to be ignored for the purposes of section 269ZB of CTA 2010.

(5) To the extent that the loss could be carried forward under section 45B of CTA 2010 to the completion period or a subsequent accounting period, it may instead be treated for the purposes of section 37 and Part 5 of CTA 2010 as a loss made in that period.

(6) Subsection (5) does not apply to the extent that the loss is carried forward by virtue of section 1179BG.

(7) In this section, “loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax.

1179BG Transfer of terminal loss to other qualifying production U.K.

(1) This section applies if—

(a) a company (“the principal company”) ceases to carry on the separate production trade in respect of a production,

(b) the principal company could, but for the cessation of that trade, carry an amount (“the terminal loss”) forward under section 45A or 45B of CTA 2010 to an accounting period after that in which the cessation occurs,

(c) when the trade ceases, either the principal company or another company in the same group carries on another separate production trade under this Chapter (“the other trade”), and

(d) the ceased trade and the other trade both relate to productions that are or were qualifying productions by virtue of the same Chapter of this Part.

(2) If the other trade is carried on by the principal company, the company may, by making a claim, treat the terminal loss (or part of it) as a loss made in the other trade that is carried forward under section 45B of CTA 2010.

(3) If the other trade is carried on by another company—

(a) the principal company may surrender the terminal loss (or part of it) to the other company, and

(b) the other company may, by making a claim, elect for the surrendered amount to be treated as a loss made in the other trade that is carried forward under section 45B of CTA 2010.

(4) The carrying forward of a loss by virtue of subsection (2) or (3) is to the first accounting period beginning after the cessation of the ceased trade.

(5) If—

(a) the other trade is no longer carried on that accounting period,

(b) the company carrying on the other trade is not entitled to an expenditure credit under Chapter 3 for that accounting period in respect of the other trade, or

(c) in a case within subsection (3), the other company does not make the election in relation to that accounting period,

the claim under subsection (2) or the surrender under subsection (3) is to be treated as not having been made.

(6) The Treasury may, in relation to surrenders or elections under subsection (3), make provision by regulations corresponding, subject to such adaptations or modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to the FA 1998.

(7) A deduction made under section 45B of CTA 2010 by virtue of this section is to be ignored for the purposes of section 269ZB of CTA 2010.

(8) The principal company is not entitled to relief under section 45F of CTA 2010 in respect of an amount surrendered under subsection (3).]