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HMRC internal manual

Film Production Company Manual

Taxation: example 3 - budgeted expenditure exceeded

This example shows how CTA2009/Part 15 Chapter2 operates to arrive at the profits/losses of a film production company (FPC) producing a film whose costs increase during production, with the final expenditure exceeding the original estimate.

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 still expects to complete the film for £15.2m. In the second accounting period, the company spends a further £5.3m, i.e. it goes £100,000 over budget. 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 £15.3m    
Increase in expenditure incurred over previous period   £5.3m £15.3m 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   £nil