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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Taxation: separate trade - commencement

S1217B Corporation Tax Act 2009 (CTA 2009)

Where a company is a Video Games Development Company (VGDC) (VGDC10110) for the purposes of Part 15B CTA 2009, the development of each video game (VGDC10100) is treated as a separate trade. This isolates the development of each video game on an individual basis for the purpose of calculating profits and losses.

The point at which this trade starts is determined by special rules but, once set up, the normal rules apply for when a trade ceases.

The normal rules for deciding when a trade commences do not apply when deciding when a separate video game trade commences. Special rules apply instead.

The VGDC is treated as commencing a new trade on the earliest of:

  • commencement of pre-development, or
  • receipt of income for the video game.

Commencement triggered by design expenditure

In many cases, the trade will commence when the video game begins designing the video game (VGDC10130).

This means that as soon as the VGDC begins to incur design expenditure on the video game, a separate video game trade relating to that video game begins. Income and expenditure relating to the video game is then accounted for in relation to that trade using the VGDC rules.

See VGDC20120 for how development costs can be brought into the video game trade.

Commencement triggered by receipt of income

In some cases, the trade will commence before design starts if the VGDC receives income relating to the video game (see VGDC20210). For example, the commencement of the trade may be triggered when a VGDC receives a grant to help fund development activity.

This ensures that all video game income is taxable as trading income. This income will be offset by pre-trading expenditure brought into account on the commencement of the trade. However, it may produce taxable profits if insufficient expenditure has been incurred at by the end of the accounting period.

The fact that the VGDC has commenced trade does not mean that the design stage has commenced.