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HMRC internal manual

Film Production Company Manual

Taxation: profit/loss calculation - expenditure - nature

CTA2009/Part 15 Chapter 2 Where profits or losses of the film-making activity of a film production company (FPC) are subject to FA06/SCH4 (FPC20010), the expenditure to be brought into account in calculating the profit or loss will be

  • all the expenditure on producing the film and,
  • where rights are retained by the FPC, the costs of exploiting those rights.

Expenditure which would otherwise be treated as capital because it relates to the creation of the film (rights in which would be reflected as an asset on the balance sheet) is treated as revenue expenditure. This treatment extends only to costs that relate the creation of an asset (the film) - so it does not apply to expenditure on plant and machinery since that would be capital regardless of the creation of the film.

Rules in CTA2009/Part 15 Chapter 2 determine how income from, and expenditure on, making the film are brought into account as debits and credits in computing the profit of the trade.

Where income or expenditure is not related to making the film (for example because it is proper to the loan relationships or intangibles regimes) the computational rules in those regimes will take priority, as they do for other trades. Any trading debit or credit arising from those regimes will then be brought into account in addition to those referred to in CTA2009/S1189 .

The normal rules determining whether particular items are allowable for tax purposes in computing the profits of a trade (for instance the rules at CTA2009/S53 et seq. - see BIM42051 onwards) still apply.

For more information on the loan relationships legislation in particular, see CFM30000 onwards.


Company A is an FPC carrying on a trade in relation to a film. In the year, income from the film to be brought into account as a credit is £2000. Costs of the film to be brought into account as a debit are £1500, which include £50 spent on entertaining. The film is financed by a loan on which interest of £100 is payable. The cash from the loan is deposited in the bank and interest of £50 is receivable.

The credits and debits for the year are therefore:

  Credits Debits
Income from film 2000  
Production expenditure   1500
Interest received 50  
Interest paid   100

The loan is a trading loan relationship while the deposit with the bank is a non-trading loan relationship. The debit for interest paid is therefore deducted in computing the profit on the film-making activity while the credit for interest received will be a non-trading loan relationship credit. A computational adjustment is needed to disallow the expenditure on entertaining giving a net debit for costs of the film of 1450

The computation of the profit or loss on the film-making activity will therefore be made up of the following debits and credits:

Income from film 2000
Costs of film (1450)
Interest paid (100)
Profit 450


The requirement to treat capital expenditure as being on revenue account only applies where the expenditure is on creation of the film, and would otherwise be treated as expenditure on creation of an asset.

The revenue treatment of expenditure does not apply to the purchase of capital items, such as cameras and lighting equipment. Expenditure on these items remains capital expenditure and capital allowances will be available as appropriate.

No double deductions

Expenditure is not deductible under the rules in CTA2009/Part 15 Chapter 2 if it has been relieved under any of the previous tax reliefs for films (F2A/92S40B, F2A/92S41 or F2A/92S42 F2A/97S48 or ITTOIA05S135 - ITTOIA05S142).