CREC061100 - Expenditure credit calculation: steps 1-2

Section 1179CA Corporation Tax Act 2009 

Step 1

Find the amount of relevant global expenditure incurred on the production up to the end of the accounting period for which the company is making a claim. This includes any expenditure incurred on the same production in previous accounting periods. 

Relevant global expenditure is core expenditure that must be brought into account as part of the separate production trade (CREC031000). It also must not be excluded expenditure.  

Core expenditure is expenditure incurred on: 

  • Pre-production, principal photography and post-production of a film or TV programme 

  • Designing, producing and testing a video game 

Excluded expenditure is expenditure that qualifies for relief under one of the Research and Development (R&D) schemes, or expenditure that represents connected party profit if the arm’s length exception does not apply – see CREC052000. 

See CREC051000 for detailed guidance on relevant global expenditure.

Relevant global expenditure includes any relevant visual effects expenditure (CREC061420) incurred on a production, even if the company is claiming additional credit for visual effects costs.

Step 1 is modified for independent films. See the guidance below.

Step 2 

Deduct any expenditure incurred on the production that is not UK expenditure (CREC054000). UK expenditure is expenditure on goods and services that are used or consumed in the UK, so at this step companies should deduct any expenditure that is not used or consumed in the UK.  

The result is the amount of UK expenditure to date.

Step 2 is modified for transitional video games. See the guidance below.


Independent films (CREC021100)

For independent films (known in legislation as certified low-budget films), relevant global expenditure at step 1 is capped at £15 million. If a company has incurred more than £15 million relevant global expenditure on an independent film at the end of an accounting period, it can still make a claim, but it can only include a maximum of £15 million relevant global expenditure at step 1 of its expenditure credit calculation. Please see CREC063300 for an example.

For step 2, UK expenditure counts towards the £15 million cap before non-UK expenditure, even if UK expenditure is incurred after non-UK expenditure. This maximises the relief a company can receive within the cap.

Example

Company A incurs £12 million relevant global expenditure on an independent film in its first accounting period. Of that £12 million, £8 million is UK expenditure and £4 million is non-UK expenditure.

In the next period, Company A incurs a further £5 million relevant global expenditure, all of which is UK expenditure. The total relevant global expenditure on the film is now £17 million, and UK expenditure is £13 million. Only £15 million of the £17 million total can be included at step 1 of the credit calculation.

At step 2, Company A assumes that all £13 million UK expenditure is within the £15 million from step 1, even though the £5 million of UK expenditure incurred in the second accounting period was incurred later than the non-UK expenditure.

Therefore, UK expenditure to date is:

£15 million relevant global expenditure (step 1)

Minus £2 million non-UK expenditure

Equals £13 million.


Transitional video games 

Step 2 is modified for video games which switch from Video Games Tax Relief (VGTR) to Video Games Expenditure Credit (VGEC). 

Instead of deducting non-UK expenditure for all accounting periods to date, companies should: 

  • deduct non-UK expenditure incurred in accounting periods for which VGEC was claimed, and 

  • deduct non-European expenditure incurred in accounting periods for which VGTR was claimed 

European expenditure is expenditure on goods and services provided from within the United Kingdom and European Economic Area (see HMRC’s Video Games Development Company manual for more detail). Non-European expenditure is therefore the cost of goods and services from outside the UK and EEA. 

Only step 2 is modified. Companies must apply step 1 and steps 3 to 5 as normal. 

NB: the legislation only modifies step 2 for games which switch to VGEC in accounting periods beginning on or after 26 November 2025. 

Example 

Company B produces a video game across two accounting periods. 

In period 1, the company claims VGTR on the game. It has total relevant global expenditure of £1,000,000, which is made up of £900,000 European expenditure and £100,000 non-European expenditure. 

In period 2, the company switches the game to VGEC. It incurs a further £1,000,000 of total relevant global expenditure in this period, of which £600,000 is UK expenditure. Non-UK expenditure is therefore £400,000. 

Company B calculates its credit for period 2. Its relevant global expenditure at step 1 is £1,000,000 + £1,000,000 = £2,000,000. 

The game has switched from VGTR to VGEC, so the modified version of step 2 applies. Starting with its £2m relevant global expenditure, Company B deducts: 

  • £400,000 non-UK expenditure, in respect of accounting periods for which it claims VGEC (just period 2, in this case) 

  • £100,000 non-European expenditure, in respect of accounting periods for which it claims VGTR (just period 1, in this case) 

The result of step 2 is therefore £2,000,000 - £400,000 - £100,000 = £1,500,000. 

Company B applies steps 3 to 5 as normal.