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HMRC internal manual

Animation Production Company Manual

Eligible expenditure: UK expenditure: services directly related to a single territory

S1216AH, S1216CG Corporation Tax Act 2009

The amount of Television Tax Relief (TTR) to which a Television Production Company (TPC) is entitled in respect of an animation trade is determined by the amount of core expenditure which is used or consumed in the UK.

Unlike live-action television productions, the services provided by third parties may take place in several locations at once. It may not be readily apparent where a service is actually used or consumed.

Furthermore, specific elements of animations may be outsourced and this can create the impression that services are being used outside of the UK. However, the location of the service provider can be misleading.

The location of the TPC is the physical location of the creative, technical and artistic control of the programme. This is typically the location where services, as well as goods, are used or consumed.

This will often be located in a studio or other bespoke facilities suitable for that particular type of animation. This means that the point of consumption for most services will be that studio.

Where the principal photography (APC10130) takes place in a single studio, it should be clear where services are used or consumed.

Example 1

An actor is asked to provide a vocal performance. The TPC agrees that this can be delivered from a sound studio outside the UK for the convenience of the actor.

The nature of the service is one of a specialist performance. It is recorded and is akin to principal photography.

Although the performance is integrated into the animation at the UK studios, the performance is delivered outside the UK. The receipt of the services is outside the UK. This is the case regardless of the actor’s residence. Therefore the expenditure is not used or consumed in the UK.

An animation is likely to have multiple locations as different elements are subcontracted to different entities. It is therefore important to determine where in fact the principal photography is taking place. This will typically be where the master recording is produced, but it is probable that principal photography takes place in multiple locations.

Example 2

A TPC decides to outsource a segment of a programme to a third party based outside the UK. This is because an entirely different animation technique is being used for that segment of the programme.

For this section of the programme, principal photography occurs outside the UK.

The level of control may be made with reference to the contracts utilised and how the subcontracted service is integrated into the whole.

This should be contrasted with the situation where images produced by a subcontractor are static and used in a manner akin to ‘props’ (see APC50100). There is a clear difference between the use of images as backdrop and those that are animated. Where the overseas work involves the animation itself, it is likely that this would be considered principal photography and so outside the UK.

Example 3

A TPC decides to outsource the production of two-dimensional backdrops to a third party based outside the UK. These are then integrated into the animation.

The contract provides that the TPC has creative control over the backdrops and that they can request amendments to specifications.

Although the production of these backdrops takes place overseas, they are qualifying UK expenditure because they are used in principal photography in the UK.

Where computer-generated imagery (CGI) animations use 3-D backdrops, consideration will be required as to what the subcontractor has delivered and whether it is considered to be animated or not.