Qualifying animations: minimum UK expenditure
S1216CE, S1216EB Corporation Tax Act 2009
To be eligible for Television Tax Relief (TTR) not less than 25% of the core expenditure (APC50010) on the programme must be UK expenditure. For programmes which had not completed principal photography at 1 April 2015 this level reduces to 10%.
Programmes that are not co-productions
Where a programme is not a co-production, the 25% or 10% (whichever applies) UK expenditure condition is judged by reference to the total core expenditure by the Television Production Company (TPC).
In the case of a co-production the 25% or 10% (whichever applies) UK expenditure condition is applied by reference to expenditure incurred by all the co-producers (not just to the core expenditure incurred by the UK Television Production Company (TPC)).
This means that any core expenditure incurred by an overseas co-producer which is also UK expenditure counts when applying the 25% or 10% (whichever applies) minimum threshold. So, for example, where the UK expenditure incurred by a UK TPC is only 20% of the total core expenditure, the 25% threshold can be met if an overseas co-producer incurs 5% or more core expenditure which is also UK expenditure.
A programme is made as a co-production under the terms of the UK-France bilateral treaty, thereby qualifying as a British programme.
Total core expenditure on the programme is £10m, of which £3m is UK expenditure. The UK co-producer incurs £2m of this expenditure, the remaining £1m being incurred by the French co-producer.
Because 30% of the total core expenditure on the programme is UK expenditure, the programme will meet the minimum UK expenditure threshold and, provided the other tests are met, the UK TPC will be entitled to Television Tax Relief on the basis of the UK core expenditure which it has incurred.
Interim accounting periods
Whether a programme meets the 25% or 10% (whichever applies) UK expenditure condition cannot be determined until after the end of the accounting period in which the programme is completed or abandoned (the ‘final accounting period’).
But tax returns for any earlier periods (‘interim accounting periods’) can include claims to TTR based on an expectation that the condition will be met if they include a statement of planned core expenditure that is UK expenditure and this indicates that on completion of the programme the UK expenditure condition will be met.
Claims for interim accounting periods will be revisited, and TTR claims appropriately revised if it turns out the final amount of core expenditure that is UK expenditure is less than 25% or 10% (whichever applies) but claims have been made as if the condition would be met.
Final statement of the core expenditure on the programme that is UK expenditure
The tax return for the final accounting period must:
- indicate that the programme has been completed or abandoned, and
- include a final statement of the core expenditure on the programme that is UK expenditure.
The final statement should include all core expenditure on the programme by the TPC. It should take account, as far as it is possible to estimate such amounts with reasonable certainty, of the amount of any deferred payments of core expenditure that is UK expenditure that can be expected to be paid out in the future (whether by the TPC or other parties).
Later accounting periods
The question of whether or not a programme satisfies the UK expenditure condition is determined by reference to the final statement of the core expenditure on the programme that is UK expenditure.
It is possible that if the TPC’s deemed trade continues into accounting periods beyond the ‘final accounting period’ (e.g. because it continues to retain and exploit an interest in the programme), subsequent amounts paid out as deferred payments may exceed the amount of such payments included on an estimated basis within the final statement of the core expenditure on the programme that is UK expenditure. Provided that the original estimates were reasonable in the circumstances in which they were made, the programme should continue to be regarded as satisfying the UK expenditure condition - i.e. its status will not be revisited in the light of subsequent events.
It would be useful to provide a link to HMRC’s website or BFI’s so the reader can find out how to apply for the interim and final certificates.