Eligible expenditure: UK expenditure: post-production services
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.
Post-production is the stage of television production where the output of previous stages of development, pre-production and principal photography is assembled.
The services related to post-production may take place at a different location from that where the principal photography took place. This is not necessarily the case but it cannot be assumed that because an animation was predominantly produced in one location, all post-production expenditure also occurred there.
Animations will typically have a higher level of post-production work performed on the master recording prior to completion of principal photography. This is because animation may be drawn out over longer periods and also because some traditional post-production activities, such as sound effects and CGI effects, are integral to completing principal photography.
Some post-production services will naturally remain at the end. For example, a sound engineer will tidy up the soundtrack, adding sound effects and mixing it to the animation. Whilst this can only be completed at the end of the production of a sequence, individual episodes and sequences can be done whilst other activities are progressing.
However, in terms of process, this clearly follows principal photography. There needs to be an awareness of what activities constitute post-production and where these might take place. If the TPC subcontracts these, they will need to establish from their suppliers the extent to which these services are used or consumed outside the UK.
Computer-generated imagery (CGI)
The same argument holds where CGI services are used. Under Film Tax Relief (FTR), CGI has routinely been treated as the creation of new images, akin to the creation of new images of actors during principal photography (FPC50090).
However, as artwork forms the basis of animation, care needs to be taken to identify the nature of the services provided. For example, a two-dimensional backdrop is more akin to scenery or props that would be used or consumed at the location of principal photography.
Where CGI services are used in post-production, it is more likely that they will be used or consumed where the service is delivered. This is because they will be provided on top of the animation completed so far.
CGI is most likely to be sub-contracted where the method of animation does not involve CGI in the first instance. This might include programmes created using traditional animation techniques or stop-frame methods.
Consequently, CGI that is performed in the UK will often be treated as UK expenditure, whereas CGI performed overseas will often not be allowed as UK expenditure.
Whilst some sound editing might occur at an early stage to help guide the animation process, there may still be post-production services requiring greater consideration as to where it is used or consumed.
A TPC engages a UK CGI company to create images and amend scene backdrops of a stop-frame animation. This is done to the master recording over the top of the existing animation.
The CGI company has two branches, one in the UK and one overseas. The work is split evenly between the two locations. Half the expenditure is treated as UK expenditure.
The half of the expenditure attributable to the overseas branch is not treated as UK expenditure because the service is used or consumed outside the UK.
A TPC commissions a composer resident in New York to write music for a programme which is being produced in the UK. The music is recorded by an orchestra in London and then incorporated into the programme during post-production in the United States.
Whilst it might be fair and reasonable to apportion the cost of the score between UK expenditure and non-UK expenditure, it is also fair to conclude that the score has largely been used or consumed during the recording in the UK.
The expenditure on recording the music is analogous to that on principal photography with the score playing the role of the script. It is therefore used or consumed in the UK.
The expenditure on incorporating the music is not UK expenditure, but the work will largely be based on the recording itself and not the score. Therefore the score will mostly be used or consumed in the UK.