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HMRC internal manual

Animation Production Company Manual

Taxation: profit/loss calculation - expenditure - timing

S1216BA, S1216BD Corporation Tax Act 2009

The rules for the timing of expenditure recognition ensure that costs are recognised when they are represented in the state of completion of the programme and, in particular that:

  • payments made in advance of the goods or services being supplied (prepayments) are ignored until the work has been carried out; and
  • work done or services supplied in exchange for the promise of payment in the future (deferred payments) are recognised to the extent that the work is represented in the state of completion. 

There are additional anti-avoidance rules to prevent companies inflating claims to Television Tax Relief (TTR) with payments that remain unpaid for long periods (APC80040). These apply only for the purposes of TTR only. These do not affect the amount of expenditure for the trade, simply when a deduction is allowed.


In the animation industry, payment for goods and/or services is sometimes contingent on the programme making a profit. Effectively, the amount the supplier is to be paid is linked to the success of the project and they will only begin to be paid these amounts when the programme generates sufficient income.

In that case the costs are recognised if, or when, the income on which they are to be based is also recognised. This applies to all Television Production Companies (TPCs), regardless of whether they claim TTR or not.

Television Tax Credits due or paid to the TPC in connection with a programme are not regarded as income earned from the programme.

See APC80040 for a worked example involving a TTR claim and deferred, contingent expenditure.