SolvedFPC20530 | Taxation: example 3 - budgeted expenditure exceeded
From HM Revenue & Customs · Film Production Company Manual
This example shows how CTA2009/Part 15 Chapter2 operates to arrive at the profits/losses of a film production company (FPC) producing a film whose costs increase during production, with the final expenditure exceeding the original estimate.
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 still expects to complete the film for £15.2m. In the second accounting period, the company spends a further £5.3m, i.e. it goes £100,000 over budget. 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.\n£10.2 = £15.5m x £10m/£15.2m |
| Profit | £0.2m | - |
Period 2
| - | Period 2 total | Increase compared to Period 1 | Notes |
|---|---|---|---|
| Expenditure incurred by end of period | £15.3m | - | - |
| Increase in expenditure incurred over previous period | - | £5.3m | £15.3m 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 | - | £nil |