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HMRC internal manual

Video Games Development Company Manual

Losses: taxation - losses - losses surrendered for payable tax credit

S1217CI(3) Corporation Tax Act 2009 (CTA 2009)

Where a company makes a claim for Video Game Tax Credit (VGTC) it surrenders a part of its surrenderable loss for the credit. The loss surrendered cannot be utilised in any other way.

Example

A Video Games Development Company (VGDC) develops Video Game 1 which qualifies for Video Games Tax Relief (VGTR). The company draws up accounts to 31 December.

The separate trade for the purposes Part 15B CTA 2009 commences on 3 October 2014 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)
Profit/(loss) on 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 to surrender part of this trading loss for VGTC.

The amount of surrenderable loss (VGDC55100) is the lesser of:

  • the amount of trading loss for the period of £1,150,000, and
  • the available qualifying expenditure of £400,000.

The maximum surrenderable loss is therefore £400,000 and this is surrendered for VGTC of £100,000.

This leaves a loss of £750,000 which can only be carried forward. As this is a development accounting period, this 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)
Profit/(loss) on 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 in respect of the video game trade.

The brought forward loss from the period ended 31 December 2014 is £750,000 and is not attributable to VGTR

As this is a completion period, the company can utilise the losses not attributable to VGTR against other profits and carry them back to the previous period. They therefore utilise losses as follows:

Set against other profits of the same accounting period £20,000
   
Carried back against profits of the previous period £10,000
Surrendered as group relief nil
  £30,000

This is the maximum amount that can be relieved. This leaves the company with nil total taxable profits in both periods.

The company has unutilised losses brought forward of £720,000.

The current year losses may be surrendered for VGTC. The maximum amount of surrenderable loss is the lesser of:

  • the amount of the trading loss for the period of £150,000, and
  • the available qualifying expenditure of £100,000.

The maximum surrenderable loss is therefore £100,000. This creates VGTC of £25,000 and leaves a trading loss for this accounting period of £50,000.

The total trading loss carried forward is therefore £770,000.

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

  APE 31/12/14

VGTR

£ APE 31/12/14

non-VGTR

£ APE 31/12/15

VGTR

£  

non-VGTR

£          
  APE 31/12/14        
  Development period loss 400,000 750,000    
  Losses surrendered for VGTC (400,000)      
  Losses carried forward   750,000    
  APE 31/12/15        
  Losses brought forward   750,000    
  Completion period losses     100,000 50,000
  Loss surrendered for VGTR     (100,000)  
  Set off against NTLR   (20,000)    
  Carried back against NTLR of previous period   (10,000)    
      720,000   50,000
  APE 31/12/16        
  Losses brought forward   720,000   50,000