Qualifying animations: animations
S1216AC(3) Corporation Tax Act 2009 (CTA 2009)
Any Television Production Company (TPC) must apply the rules in Part 15A CTA 2009 to compute the taxable profits or losses pertaining to its activities in relation to a programme.
The legislation requires that a programme is not an excluded programme. These are listed in the legislation (S1216AD CTA 2009) as:
- advertisements or other promotional material
- news or current affairs programmes or discussion programmes
- any quiz show, game show, panel show, variety show, chat show or similar entertainment
- a programme that consists of or includes a competition or contest or announces the results of a competition or contest
- any broadcast of live events or of theatrical or artistic performance given otherwise than for the purpose of being filmed
- any programme produced for training purposes
These categories include many types of programme which might be argued as being documentary or drama but which are not intended recipients of TTR.
For example, a routine production at the theatre which is simply recorded for broadcast is not intended to benefit from TTR because it is not primarily a television production. Likewise, records of sporting events might be considered to be documentary in some circumstances but are also not intended to benefit from TTR.
For documentaries concerned with the performing arts and sports, it might be that elements of theatrical production or live events are used to document events or illustrate individuals’ actions. However, it will be a question of fact how footage is used, whether as documentation or otherwise.
For a television programme to qualify as an animation, at least 51% of the total core expenditure must be incurred on animation. This does not need to be UK expenditure
The term ‘animation’ is not itself defined within the legislation. It is therefore given its common meaning.
An animation may be generated by various techniques including, but not limited to:
- hand-drawn illustrations
- digital rendering in 2D or 3D
- using photography to generate individual frames as in stop motion
Core expenditure which relates to this will count towards animation production expenditure. Further to this, any expenditure which is incurred in order to produce the animation will be included.
Where a programme mixes animation and live action, the TPC will need to consider whether 51% of the total core expenditure is incurred on animation. Otherwise it will need to meet the criteria for television programmes that relate to:
- slot length, and
- average core expenditure per hour of slot length.
There will be costs which relate purely to the live action element and costs which relate purely to the animation element of a programme. Once these have been identified, there will remain elements which relate to both.
This will include many fundamental costs of production, such as screenplay and script, soundtracks and so on. There will probably be dedicated crew for the separate methods, but there will be members of the production crew who span both operations.
This may include actors who might provide a live action performance in addition to a vocal performance for the purposes of the animation. In all cases, a fair and reasonable apportionment will need to be made on the basis of the specific facts.
In order to apply for an interim certificate from the BFI (APC40030), a TPC must provide assurance that the programme meets the 51% threshold. This will need to be done on the basis of the estimated budget for the entire project.
For TPCs this may create a significant amount of uncertainty as to whether the programme is eligible for TTR. This will especially be the case where the estimated core expenditure for animation is close to 51% and the television programme would not otherwise qualify for the high end television relief.
The previous certification of an earlier series is no guarantee that this 51% threshold is met. This is because some core expenditure for animation may not need to be duplicated in subsequent series.
A programme that was an animation may cease to be a qualifying animation between series.