FPC30080 - 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 2019. The film is completed on 10 February 2020. The company sells Film 1 outright on 15 August 2020 and ceases to trade.
Company A is in a group as defined for group relief purposes with Company B. Company B also carries on a trade in relation to a film qualifying for Film Tax Relief. Company B’s trade in relation to Film 2 commences on 17 March 2020.
Both companies draw up accounts to 31 December.
The accounting periods are therefore:
| Company A | Company B |
|---|---|
| 3 July to 31 December 2019 | 17 March to 31 December 2020 |
| Period ended 15 August 2020 | Year ended 31 December 2021 |
The computations of Company A show:
| Company A: APE 31 December 2019 | Amount |
|---|---|
| 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 | 10,000 |
Company A’s computation for this period shows a trade 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 carried forward under CTA10/S45B.
The other income 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 attributable.
| Company A: APE 15 August 2020 – Film 1 completed and trade ceases | Amount |
|---|---|
| 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 | 20,000 |
| Company B: APE 31 December 2020 - Film 2 commences | Amount |
|---|---|
| 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 | 20,000 |
Company A’s computation for the accounting period ended 31 December 2020 shows aprofit of 250,000 on Film 1. This is a completion accounting period and a cessation accounting 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 company chooses to utilise those options are as follows:
| - | Amount of loss |
|---|---|
| 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 CTA10/S45A and S45B 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 can treat it as a loss brought forward in the trade in relation to Film 2 in the next accounting period. Company A chooses to surrender the full 750,000 to Company B.
| Company B: APE 31 December 2021 | Amount |
|---|---|
| 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 | 50,000 |
Company B’s computation for this period shows a profit of 400,000 on Film 2 and other 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 to nil and a loss of 350,000 is carried forward to the next accounting period under CTA10/S45B. 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.
| - | FTR losses - Company A | non-FTR losses - Company A | Company B |
|---|---|---|---|
| APE 31 December 2019 | - | - | - |
| Production period loss carried forward into completion period | 400,000 | 750,000 | - |
| APE 31 December 2020 | - | - | - |
| Losses brought forward | 400,000 | 750,000 | - |
| Set off against current period profit of Film 1 | (250,000) | - | - |
| Set off against current period other income | - | (20,000) | - |
| Carried back against other income 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 2021 | - | - | - |
| 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 |