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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 eligible for FTR

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

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

The computations show:

APE 31 December 2009

Income from the film 100,000
   
Costs of the film (850,000)
Film tax relief - additional deduction (400,000)
Loss on film (1,150,000)
Other income - Case III 10,000

The computation for this period shows a Case I loss of 1,150,000. The company chooses not to surrender any part of this trading loss for the film tax credit. This is a production accounting period and so loss relief is restricted. The loss can only be carried forward under ICTA88/S393(1). The Case III profit therefore remains taxable and a loss of 1,150,000 is carried forward under ICTA88/S393(1). Of these losses, 400,000 is attributable to FTR; 750,000 is not.

APE 31 December 2010 - completion period

Income from the film 100,000
   
Costs of the film (150,000)
Film tax relief - additional deduction (100,000)
Loss on film (150,000)
Other income - Case III 20,000

This is the completion period. The computation shows a Case I loss of 150,000. The company chooses not to surrender any part of this trading loss for the film tax credit.

The loss brought forward from the accounting period ended 31 December 2009 may also be treated as a loss of this accounting period for the purposes of loss relief in so far as it is not attributable to FTR. The amount carried forward into the completion period that is not attributable to Film Tax Relief is 750,000.

The loss of the completion period that is available to surrender, set sideways and carry back is restricted; it is calculated as if no FTR was ever available. The adjusted loss is 50,000.

The total amount of loss available for loss relief purposes in this accounting period is therefore 800,000. This is made up of the 750,000 brought forward and the 50,000 of the period itself. This loss is available:

  • to set against other profits of the same accounting period;
  • to carry back under ICTA/S393A(1) against profits of an earlier accounting period; and
  • to surrender as group relief where appropriate.

The company chooses to set off 20,000 of the loss against the Case III income of the completion period and carry back 10,000 against the Case III income in the earlier production period. Leaving 770,000 to carry forward.

Any remaining loss, whether attributable to Film Tax Relief or not is carried forward under ICTA88/S393(1). A total of 1,270,000 remains available to be carried forward under ICTA88/S393(1).

APE 31 December 2011

Income from the film 1,000,000
   
Costs of the film - exploitation costs (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. The brought forward loss of 1,270,000 is set against this profit. The loss attributable to FTR is used in priority, followed by the loss not attributable to FTR that derives from the completion period. This leaves a loss of 370,000 which can be identified as not attributable to Film Tax Relief and derived from the production period. This loss can be treated as a loss of this accounting period for the purposes of loss relief.

The following table tracks the use of the losses in the accounting periods:

 

  FTR non-FTR FTR non-FTR
APE 31 December 2009        
Production period loss 400,000 750,000    
Losses carried forward into completion AP 400,000 750,000    
         
APE 31 December 2010        
Losses brought forward 400,000 750,000    
Completion period loss     100,000 50,000
Loss utilised against Case III (CY & PY)       (30,000)
Losses carried forward 400,000 750,000 100,000 20,000
         
APE 31 December 2011        
Losses brought forward 400,000 750,000 100,000 20,000
Utilised against profit of same trade -400,000 -380,000 -100,000 -20,000
Remaining - available to set off or surrender   370,000