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HMRC internal manual

Animation Production Company Manual

HM Revenue & Customs
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Taxation: separate trade - commencement

S1216B Corporation Tax Act 2009 (CTA 2009)

Where a company is a Television Production Company (TPC) (APC10110) for the purposes of Part 15A CTA 2009, the production of each animation (APC10100) is treated as a separate trade. This means that the profits and losses of each relevant programme should be calculated separately and the rules applying to a trade should be applied to each relevant programme.

The normal rules for deciding when a trade commences do not apply when deciding when a separate animation programme trade commences. Instead, the commencement of trade is determined by special rules.

The TPC is treated as commencing a new trade on the earliest of:

  • commencement of pre-production, or
  • receipt of income for the animation.

The normal rules apply for when a trade ceases.

Commencement triggered by pre-production expenditure

In many cases, the trade will commence when the programme begins pre-production. (APC10130).

This means that as soon as the TPC begins to incur pre-production expenditure on the animation, a separate animation programme trade relating to that programme begins. Income and expenditure relating to the programme is then accounted for in relation to that trade using the TTR rules.

See APC20120 for how development costs can be brought into the animation programme trade.

The different stages of animation production (APC10130) are not necessarily sequential and may well overlap or be carried out in a different order.

For example, some post-production work will precede principal photography. In addition, significant amounts of work at the pre-production stage may have occurred before the development stage has finished.

With animations it is possible for expenditure on pre-production activities to trigger the commencement of the animation programme trade while development expenditure is still being incurred.

Commencement triggered by receipt of income

In some cases, the trade will commence before pre-production starts if the TPC receives income relating to the animation (see APC20210). For example, the commencement of the trade may be triggered when a TPC receives a grant to help fund development activity.

This ensures that all animation income is taxable as trading income. This income may be offset by pre-trading expenditure brought into account on the commencement of the trade. However, it may produce taxable profits if insufficient expenditure has been incurred by the end of the accounting period.

The fact that the TPC has commenced trade does not mean that pre-production has commenced.