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HMRC internal manual

Video Games Development Company Manual

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HM Revenue & Customs
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Losses: example - video game eligible for VGTR

A Video Games Development Company (VGDC) is set up to develop a single video game that qualifies for Video Games Tax Relief (VGTR).

The separate trade for VGTR for the purposes of Part 15B Corporation Tax Act 2009 commences on 3 October 2013 and the video game is completed on 10 February 2015. The accounting periods to be considered are:

  • 3 October to 31 December 2014
  • Year ended 31 December 2015
  • Year ended 31 December 2016

The computations show:

Period ended 31 December 2014 £
Income from the video game 100,000
Costs of the video game (850,000)
Video game tax relief - additional deduction (400,000)
Loss on the video game (1,150,000)
Other income - non-trade loan relationship 10,000

The computation shows a trading loss of £1,150,000. The VGDC chooses not to surrender any part of this trading loss for the Video Game Tax Credit (VGTC).

As this is a development accounting period, the loss is restricted and cannot be offset against other income. The interest income (the non-trade loan relationship income) is therefore taxable.

Period ended 31 December 2015 - completion period £
Income from the video game 100,000
Costs of the video game (150,000)
Video game tax relief - additional deduction (100,000)
Loss on the video game (150,000)
Other income - non-trade loan relationship 20,000

The computation shows a trading loss of £150,000.

This is the completion period. The trading loss brought forward that is not attributable to VGTR can be treated as a loss of the accounting period for the purposes of loss relief. The amount carried forward into the completion period that is not attributable to VGTR is £750,000 (1,150,000 - 400,000).

The £50,000 loss of this accounting period that is not attributable to VGTR is therefore enhanced by the trading loss brought forward from the earlier period.

The losses available to use in this period are £800,000.

The loss not attributable to VGTR treated as incurred in the period may be:

  • set against other profits of the same accounting period, the non-trade loan relationship income,
  • carried back against profits of the accounting period ended 31 December 2014, or
  • surrendered as group relief if available.

The company sets off the losses against the non-trade loan relationship income of the current and previous period. This means that there are no taxable profits in the period ended 31 December 2014 and the period ended 31 December 2015.

The losses not attributable to VGTR carried forward are £770,000 (£800,000 - £30,000).

However, in addition to this amount there is an amount of losses attributable to VGTR of £500,000 being £400,000 from 2014 and £100,000 from 2015. This gives a total of £1,270,000 of losses available to be carried forward against future profits of the trade.

Period ended 31 December 2016 £
Income from the video game 1,000,000
Costs of the video game (100,000)
Profit on the video game 900,000
Other income - non-trade loan relationship 50,000

The computation for this period shows a trading profit of £900,000. The losses brought forward of £1,270,000 are utilised against this profit first.

The losses attributable are used in priority over those not attributable to VGTR. This is because there is no stipulated order and the losses not attributable to VGTR can be utilised more readily.

This means that the £500,000 of losses attributable to VGTR are used in full. This reduces the trading profit to £400,000. Losses brought forward must be used against these profits in the first instance.

The remaining loss not attributable to VGTR of £370,000 may be:

  • set against other profits of the same accounting period, the non-trade loan relationship income,
  • carried back against profits of the accounting period ended 31 December 2014, or
  • surrendered as group relief if available.

The VGDC utilises them against the non-trade loan relationship profit of £50,000, reducing the total taxable profits to nil.

The VGDC has trading losses of £320,000 carried forward at 31 December 2016. These are losses not attributable to VGTR and may be set against other profits or surrendered to other group companies in the next trading period.

The following table shows how the losses are used in the various accounting periods:

  Losses from APE 31/12/14

VGTR

£ Losses from APE 31/12/14

non-VGTR

£ Losses from APE 31/12/15

VGTR

£ Losses from APE 31/12/15

non-VGTR

£          
  APE 31/12/14        
  Development period loss 400,000 750,000    
  Losses carried forward into completion period 400,000 750,000    
  APE 31/12/15        
  Losses brought forward 400,000 750,000    
  Completion period loss     100,000 50,000
  Loss utilised against NTLR (CY & PY)       (30,000)
  Losses carried forward 400,000 750,000 100,000 20,000
  APE 31/12/16        
  Losses brought forward 400,000 750,000 100,000 20,000
  Utilised against profits of the same trade (400,000) (380,000) (100,000) (20,000)
  Losses utilised against NTLR (CY)   (50,000)    
  Remaining - available to surrender or carry forward   320,000