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HMRC internal manual

Animation Production Company Manual

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HM Revenue & Customs
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Taxation: examples 1 and 2 - one-period and two-period productions

The following two examples illustrate how Part 15A Corporation Tax Act 2009 applies in calculating the profits/losses for the separate programme trade of a Television Production Company (TPC) producing a programme over one and two accounting periods.

In the examples, none of the costs are disallowed under the Taxes Acts.

Example 1

A TPC is commissioned by a broadcaster to make an animation for an agreed budget of £1.52m and agrees to sell all the rights in the programme to the broadcaster for £1.55m. The animation is completed within a single accounting period. The programme is not eligible for Television Tax Relief but the tax regime for calculating the profits and loss of a TPC nevertheless applies.

For tax purposes the TPC’s profit from the trade of producing the programme is £30k (£1.55m - £1.52m).

Example 2

The situation is similar to Example 1 but the programme takes longer to complete.

A TPC is commissioned by a broadcaster to make a programme for an agreed budget of £1.52m and agrees to sell all the rights in the programme to the broadcaster for £1.55m. At the end of the first accounting period the TPC has spent £1m, and in the second it spends a further £5.2m. The programme is not eligible for TTR but the tax regime for calculating the profits and loss of a TPC nevertheless applies.

The profits in each accounting period are calculated as follows:

Period 1

Expenditure incurred by end of period £1m Out of total expected costs of £1.52m
     
Income treated as earned by end of period £1.02m Expected total income of £1.55m. The extent to which this is allocated to Period 1 mirrors the extent to which total expected costs fall within Period 1.
£1.02m = £1.55m x £1m/£1.52m      
  Profit £0.02m  

Period 2

Expenditure incurred by end of period £1.52m    
       
Increase in expenditure incurred over previous period   £0.52m £1.52m less £1m
Income treated as earned by end of period £1.55m    
Increase in income treated as earned over previous period   £0.53m £1.55 less £1.02m
Profit   £0.01m