VGDC30100 - 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:

- Amount
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 31/12/2014 - VGTR - £ APE 31/12/2014 - non-VGTR - £ APE 31/12/2015 - VGTR - £ non-VGTR - £
APE 31/12/2014 - - - -
Development period loss 400,000 750,000 - -
Losses surrendered for VGTC (400,000) - - -
Losses carried forward 0 750,000 - -
APE 31/12/2015 - - - -
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 0 50,000
APE 31/12/2016 - - - -
Losses brought forward - 720,000 - 50,000