SolvedFPC20510 | Taxation: examples 1 and 2 - one-period and two-period productions
From HM Revenue & Customs · Film Production Company Manual
The following two examples illustrate how CTA2009/Part 15 Chapter 2 apply in calculating the profits/losses of a film production company (FPC) producing a film over one and two accounting periods.
Example 1
An FPC is commissioned by a studio to make a film for an agreed budget of £15.2m and agrees to sell all the rights in the film to the studio for £15.5m. The film is completed within a single accounting period. The film is not eligible for Film Tax Relief (FTR).
For the purposes of CTA2009/Part 15 Chapter2 the FPC’s profit from the trade of producing the film is £0.3m (£15.5 - £15.2m).
Example 2
The situation is similar to Example 1 but the film takes longer to complete.
An FPC is commissioned by a studio to make a film for an agreed budget of £15.2m and agrees to sell all the rights in the film to the studio for £15.5m. At the end of the first accounting period the FPC has spent £10m, and in the second it spends a further £5.2m. The film is not eligible for Film Tax Relief (FTR).
The profits in each accounting period are calculated as follows:
Period 1
| - | Period 1 total | Notes |
|---|---|---|
| Expenditure incurred by end of period | £10m | Out of total expected costs of £15.2m |
| Income treated as earned by end of period | £10.2m | Expected total income of £15.5m. The extent to which this is allocated to Period 1 mirrors the extent to which total expected costs fall within Period 1: £10.2 = £15.5m x £10m/£15.2m |
| Profit | £0.2m | - |
Period 2
| - | Period 2 total | Increase compared with Period 1 | Notes |
|---|---|---|---|
| Expenditure incurred by end of period | £15.2m | - | - |
| Increase in expenditure incurred over previous period | - | £5.2m | £15.2m less £10m |
| Income treated as earned by end of period | £15.5m | - | - |
| Increase in income treated as earned over previous period | - | £5.3m | £15.5 less £10.2m |
| Profit | - | £0.1m | - |