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HMRC internal manual

Film Production Company Manual

HM Revenue & Customs
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Taxation: profit/loss calculation - income - timing

CTA2009/S1189 and S1192

Where the film-making activities of a film production company (FPC) are being taxed in accordance with CTA2009/Part 15 Chapter 2 (FPC20010) income is recognised as expenditure is incurred (in line with current accounting principles), even where the film expenditure would not be taken to the profit and loss account because the company is creating a capital asset for exploitation (FPC20230).

For a more detailed explanation of this matching of income to expenditure see FPC20250.

This treatment results in profits being recognised as production progresses and not just at completion.

The underlying principles of revenue and profit recognition are embodied in section 23 of FRS102.  Other accounting standards dealing with revenue and profit recognition are Application Note G to FRS5, UITF40, IAS18, SSAP9 and IAS11, none of which contain principles that are substantially different to section 23 of FRS102.   

The amount of income to be recognised at the end of an accounting period is given by the formula (FPC20250). This measures the state of completion of the film by reference to the production expenditure to date compared to the estimated total production expenditure on the film and applies this proportion to estimated total income from the film treated as earned at the end of the period. We would expect future income to be discounted before being brought into this formula.

When the film is complete there will generally be no further expected expenditure on its production or, if sold, on its exploitation (if the film is retained and exploited there may of course be further expenditure on exploitation), so all the known estimated income will have been recognised and any further income should be recognised as it is earned.