Corporation tax reliefs for the creative sector 

Summary of proposal

The new incentives form part of the Government’s stated aim to make the UK the technology centre of Europe and it is hoped they will support technological innovation while ensuring that companies working in these highly creative industries continue to contribute to UK economic growth and British culture. 

The core design characteristics of the reliefs are as follows:

• Applicable to companies within the charge to UK corporation tax that are directly involved in the development of video games, the production of qualifying high end television programmes or the production of animation programmes.
• Television programmes will only qualify where the programme is a drama or a documentary, the slot length is at least 30 minutes long and the average expenditure per hour of slot length is at least £1m. There are no such requirements for animation productions.
• Advertisements, current affairs programmes, entertainment shows, competitions, live performances or any programmes produced for training purposes will not qualify.
• Qualifying video games will not include anything produced for advertising or promotional purposes or anything produced for the purposes of gambling.  The game’s soundtrack is however included.  
• Eligible companies will be able to claim an additional deduction in computing their taxable profits and, where that deduction results in a loss, to surrender those losses for a cash tax credit.  The additional deduction is based on UK core expenditure up to a maximum of 80 per cent of the total core expenditure by the qualifying company and the payable tax credit is 25 per cent of losses surrendered. 
• Core expenditure on high end television and animation programmes is defined as expenditure on pre-production, principal photography and post production activities.
• Core expenditure on video games production is defined as the costs of designing, producing and testing the game (but not the design of the initial concept, nor any debugging/maintenance in relation to a completed game).
• At least 25% of core expenditure must be UK expenditure (i.e. expenditure on goods or services that are used or consumed in the UK). 
• For video games, there has to be an intention for supply to the public; for television and animation programmes, there has to be an intention to broadcast to the general public.
• Eligible companies will need to treat each qualifying programme or video game as a separate trade for tax purposes.  There are detailed computational rules setting out how the profits or losses of each trade should be calculated together with how relief may be obtained for losses which are broadly in line with the existing film tax rules.
• Productions must be certified by the Department of Culture, Media and Sport (‘DCMS’) as being culturally British in order to be eligible for the relief.  Certification will be based on a points test, taking into account such things as where the video game or programme is set and the contribution of the game/ production to the promotion, development and enhancement of British culture. 
• Claims will need to be made through the submission of a UK corporation tax return.
• It will not be possible to claim both creative sector tax relief and R&D tax relief on the same expenditure.
  

Timing

Subject to State aid approval by the European Commission, the new reliefs will apply to qualifying expenditure incurred on or after 1 April 2013.