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HMRC internal manual

Film Production Company Manual

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HM Revenue & Customs
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Film Production Companies: Losses: Example: Film ineligible for FTR

An FPC is set up to produce a single film that does not qualify for Film Tax Relief (FTR).

The trade in relation to the film commences on 3 July 2009 and the film is completed on 10February 2010. The company draws up accounts to 31 December. The accounting periods aretherefore:
 

  • 3 July to 31 December 2009
  • Year ended 31 December 2010
  • Year ended 31 December 2011

The computations show:
 

Period ended 31 December 2009

Income from the film 100,000
   
Costs of the film (850,000)
Loss on film (750,000)
Other income – Case III 10,000

The computation for this period shows a Case I loss of 750,000. This is a productionaccounting period and so the loss is restricted. It can only be carried forward undersection 393(1) ICTA 1988. The Case III profit therefore remains taxable.
 

APE 31 December 2010 – completion period

Income from the film 100,000
   
Costs of the film (150,000)
Loss on film (50,000)
Other income – Case III 20,000

This is the completion period. The computation shows a Case I loss of 50,000.

The trading loss brought forward from the earlier production period is not attributableto FTR so is treated as a loss of this accounting period for the purposes of loss relief.The loss of this accounting period for the purposes of loss relief is therefore increasedto 800,000.

The increased loss is available under section 393A(1) ICTA 1988:
 

  • To set against other profits of the same accounting period. (This would reduce the Case III profit of this accounting period).
  • To carry back against profits of the accounting period ended 31 December 2009. (This would reduce the Case III profit of the earlier accounting period).
  • To surrender as group relief where appropriate.

Any remaining loss is available to carry forward under section 393(1) ICTA 1988.

The company chooses set off the losses as follows:
 

  • 20,000 against other profits of the same accounting period, and
  • 10,000 against profits of the earlier accounting period

This leaves a loss of 770,000 (800,000 - 30,000) to carry forward.

It is advantageous for the company to treat the loss of the completion period as set offagainst other profits, allowing the company to carry forward the losses of the earlierproduction period to carry forward to a later accounting period so that they can betreated as a loss of that later period for the purposes of loss relief. A maximum of750,000 is derived from the earlier production accounting period and is carried forward aspart of the 770,000.
 

APE 31 December 2011

Income from the film 1,000,000
   
Costs of the film (100,000)
Profit on film 900,000
Other income – Case III 50,000

The computation for this period shows a Case I profit of 900,000. Any brought forward lossis firstly set against this profit. The whole of the brought forward loss (770,000) isutilised against this profit leaving no part of the production period loss available tocarry forward again.