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HMRC internal manual

Animation Production Company Manual

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HM Revenue & Customs
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Taxation: profit/loss calculation - matching income to expenditure in different periods of account

S1216BA, S1216BF Corporation Tax Act 2009 (CTA 2009)

Part 15A CTA 2009 sets out how the profits and losses of an animation trade of Television Production Companies (TPCs) (APC10110) are calculated for tax purposes. The method for matching income to expenditure is explained in APC20255.

Calculation of profit or loss: first period of account after trading begins

In the first period of account following the commencement of trading (APC20100) there are no costs reflected in work done that are attributable to a preceding accounting period because any pre-trading expenditure is treated as work of the first accounting period (APC20120).

The expenditure to be taken into account as a debit in calculating the taxable profit is the expenditure of the first period that is reflected in the state of completion of the programme (APC20240). The income to be taken into account as a credit in calculating the taxable profits of the first accounting period is the income that is treated as earned at the end of the accounting period using the formula above.

For those animations which are completed within an accounting period, and then sold, this will be the normal method for calculating the profit or loss attributable to the animation.

Calculation of profit or loss: subsequent periods of account

In subsequent periods of account the profit for the period is calculated by comparing the further work done measured by the additional expenditure and the increase, or decrease, in the income treated as earned by the animation.

The expenditure to be taken into account as a debit in calculating the taxable profit is the expenditure to date, reflected in the state of completion of the programme, less the expenditure to date at the end of the previous accounting period. This gives the expenditure of the accounting period that is reflected in the state of completion of the animation.

The income to be taken into account as a credit in calculating the taxable profits is the income that is treated as earned at the end of the accounting period using the formula above less the income treated as earned at the end of the previous accounting period. This gives the increase or decrease in the income treated as earned in the accounting period.

See APC20510 - APC20550 for examples of these calculations.