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HMRC internal manual

Film Production Company Manual

Taxation: separate trade - cessation

Where a company is a film production company (FPC) (see FPC10110) for the purposes of the film tax regime , the production of each film is treated as a separate trade. This isolates films on an individual basis for the purpose of calculating profits and losses.

The point at which this trade starts is determined by special rules (FPC20100) but, once set up, the normal rules apply for when a trade ceases. Guidance at BIM70565 onwards sets out the normal cessation rules.

The question of whether any trade has ceased is a matter of fact. An FPC’s trade may include:

  • exploiting a film (see FPC20210))
  • selling a film, and all the rights in it, for others to exploit, or
  • making films under contract to another person such that it never holds any of the rights.

In cases where a film, and all the rights in it, is sold outright, it will be easy to determine the point where the trade ceases.

The point of cessation may be less clear where some or all of the rights in the film are retained by the FPC. Broadly speaking, a trade will have ceased when the FPC no longer actively exploits, nor has any expectation that income will arise from, the film rights.

So where an FPC retains rights to enjoy future income from the film (possibly coupled to an obligation to make further deferred payments out of those receipts) that income is regarded as deriving from the ongoing trade of film production relating to that trade. This is the case even where receipts follow a ‘stagnant’ period during which no income was received. The receipts will not relate any new trade, nor will they be treated as non-trading (investment) income.

If a trade has ceased, an FPC may be able to liberate losses attributable to additional deductions to which it is eligible under FTR by using the special terminal loss rules - FPC30040.