SolvedVGDC30100 | Losses: taxation - losses - losses surrendered for payable tax credit
From HM Revenue & Customs · Video Games Development Company Manual
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 |