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HMRC internal manual

Film 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 CTA2009/Part 15 Chapter 2 apply in calculating the profits/losses of a film production company (FPC) producing a film over one and two accounting periods.

Example 1

An FPC is commissioned by a studio to make a film for an agreed budget of £15.2m and agrees to sell all the rights in the film to the studio for £15.5m. The film is completed within a single accounting period. The film is not eligible for Film Tax Relief (FTR).

For the purposes of CTA2009/Part 15 Chapter2 the FPC’s profit from the trade of producing the film is £0.3m (£15.5 - £15.2m).

Example 2

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

An FPC is commissioned by a studio to make a film for an agreed budget of £15.2m and agrees to sell all the rights in the film to the studio for £15.5m. At the end of the first accounting period the FPC has spent £10m, and in the second it spends a further £5.2m. The film is not eligible for Film Tax Relief (FTR).

The profits in each accounting period are calculated as follows:

Period 1

Expenditure incurred by end of period £10m Out of total expected costs of £15.2m
     
Income treated as earned by end of period £10.2m Expected total income of £15.5m. The extent to which this is allocated to Period 1 mirrors the extent to which total expected costs fall within Period 1.
£10.2 = £15.5m x £10m/£15.2m      
  Profit £0.2m  

Period 2

Expenditure incurred by end of period £15.2m    
       
Increase in expenditure incurred over previous period   £5.2m £15.2m less £10m
Income treated as earned by end of period £15.5m    
Increase in income treated as earned over previous period   £5.3m £15.5 less £10.2m
Profit   £0.1m