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HMRC internal manual

Animation Production Company Manual

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HM Revenue & Customs
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Taxation: example 3 - budgeted expenditure exceeded

This example shows how Part 15A Corporation Tax Act 2009 operates to arrive at the profits/losses of a Television Production Company (TPC) producing a programme whose costs increase during production, with the final expenditure exceeding the original estimate.

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 still expects to complete the programme for £1.52m. In the second accounting period, the company spends a further £530k. It goes £10,000 over budget. The programme is not eligible for TTR.

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

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.
£1.02 = £1.55m x £1m/£1.52m      
  Profit £20k  

Period 2

Expenditure incurred by end of period £1.53m    
       
Increase in expenditure incurred over previous period   £0.53m £1.53m 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   £nil