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.
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).
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:
|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|
|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|