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HMRC internal manual

Film Production Company Manual

Film Production Companies: Losses: Example: Terminal losses surrendered

Company A is a film production company (FPC). It is making an FTR-qualifying film, Film 1.

The trade in relation to the Film 1 commences on 3 July 2009. The film is completed on 10February 2010. The company sells Film 1 outright on 15 August 2010 and ceases to trade.

Company A is in a group as defined for group relief purposes with Company B. Company Balso carries on a trade in relation to a film qualifying for Film Tax Relief. CompanyB’s trade in relation to Film 2 commences on 17 March 2010.

Both companies draw up accounts to 31 December.

The accounting periods are therefore:

Company A Company B
3 July to 31 December 2009 17 March to 31 December 2010
Period ended 15 August 2010 Year ended 31 December 2011

The computations of Company A show:

Company A: APE 31 December 2009

Income from Film 1 100,000
Costs of Film 1 (850,000)
Film tax relief (400,000)
Loss on Film 1 (1,150,000)
Other income – Case III 10,000

Company A’s computation for this period shows a Case I loss of 1,150,000 on Film 1.The company chooses not to surrender any part of this loss for the Film Tax Credit. Thisis a production accounting period and so the loss is restricted. It can only be carriedforward under ICTA88/S393(1).

The Case III profit therefore remains taxable and a loss of 1,150,000 is carried forward.Of this loss 750,000 is not attributable to FTR; 400,000 is so attributable.

Company A: APE 15 August 2010 – Film 1 completed & trade ceases

Income from Film 1 500,000
Costs of Film 1 (150,000)
Film tax relief (100,000)
Profit on Film 1 250,000
Other income – Case III 20,000

Company B: APE 31 December 2010 - Film 2 commences

Income from Film 2 800,000
Costs of Film 2 (400,000)
Film tax relief (300,000)
Profit on Film 2 100,000
Other income – Case III 20,000

Company A’s computation for the accounting period ended 31 December 2010 shows aprofit of 250,000 on Film 1. This is a completion accounting period and a cessationaccounting period in respect of Film 1.

The brought forward loss of 1,150,000 reduces the profit on Film 1 to nil leaving a lossof 900,000 available.

The brought forward loss attributable to FTR (400,000) is sufficient to cover the profitsof the same trade (250,000).

The whole of the brought forward production period loss not attributableto FTR (750,000) is now treated as a loss of this accounting period for the purposes ofloss relief. The options available for these losses, and the extent to which the companychooses to utilise those options are as follows:

Set against other profits of the same accounting period 20,000
Carry back against profits of an earlier accounting period 10,000
Surrender as group relief where appropriate 120,000
Total 150,000

Of the full brought forward loss of 1,150,000 a total of 400,000 has been utilized. Theremaining 750,000 would be available to carry forward under ICTA88/s393(1) but for thefact that the trade has now ceased. In normal circumstances this loss would be stranded.

The company can instead elect to surrender the stranded loss to Company B so that it cantreat it as a loss brought forward in the trade in relation to Film 2 in the nextaccounting period. Company A chooses to surrender the full 750,000 to Company B.

Company B: APE 31 December 2011

Income from Film 2 1,000,000
Costs of Film 2 (400,000)
Film tax relief (200,000)
Profit on Film 2 400,000
Other income – Case III 50,000

Company B’s computation for this period shows a profit of 400,000 on Film 2 and CaseIII income of 50,000.

The company claims to treat the loss surrendered by Company A (750,000) as a loss broughtforward in its trade in relation to Film 2. The profit on Film 2 is therefore reduced tonil and a loss of 350,000 is carried forward to the next accounting period underICTA88/s393(1). This loss will only be available to utilise against profits of the tradein respect of Film 2. Note that the special treatment afforded to some production periodlosses does not carry over into the Film 2 trade.

The following table tracks the losses in the accounting periods.

  Company A Company B  
  FTR losses non-FTR losses  
APE 31 December 2009      
Production period loss carried forward into completion period 400,000 750,000  
APE 31 December 2010      
Losses brought forward 400,000 750,000  
Set off against current period profit of Film 1 (250,000)    
Set off against current period Case III   (20,000)  
Carried back against Case III of earlier period   (10,000)  
Surrendered as group relief   (120,000)  
Carried forward to set against future profits of Film 2 150,000 600,000  
APE 31 December 2011      
Losses brought forward by surrender from Company A     750,000
Set off against current period profits of Film 2     (400,000)
Loss carried forward     350,000