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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: Losses surrendered for payable tax credit

CTA09/S1202(4)

Where a company makes a claim for Film Tax Credit it surrenders a part of its surrenderable loss for the credit. Once a loss is utilised in this way it ceases to be a part of the trading loss for that accounting period.

Example

A film production company (FPC) produces one film that qualifies for Film Tax Relief (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 to surrender the maximum amount of this loss for the Film Tax Credit.

The amount of its surrenderable loss (FPC55100) is the lesser of

  • the amount of the trading loss for the period - 1,150,000; and
  • the available qualifying expenditure - 400,000.

The maximum surrenderable amount is therefore 400,000 and this is surrendered for Film Tax Credit of 100,000. The loss of the period is reduced by 400,000 leaving 750,000.

This is a production accounting period and so loss relief is restricted. The 750,000 loss can only be carried forward under ICTA88/s393(1). The Case III profit therefore remains taxable and a loss of 750,000 is carried forward under ICTA88/S393(1).

It is most beneficial to the company to

  • treat the loss attributable to FTR as being the loss surrendered for the Film Tax Credit and
  • carry forward the 750,000 of losses not attributable to FTR .

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 to surrender the maximum amount of the trading loss of the year for the Film Tax Credit.

Note that, to the extent that they are not attributable to FTR, the losses brought forward from the previous period may also be treated as a loss of this accounting period. But that treatment only applies for the purposes of loss relief. For the purposes of calculating the surrenderable loss for this period the trading loss remains 150,000 - it is not augmented by any part of the production period loss brought forward.

The amount of the company’s surrenderable loss for this period is the lesser of

  • the amount of the trading loss for the period - 150,000, and
  • the available qualifying expenditure - 100,000.

The maximum surrenderable amount is therefore 100,000 and this is surrendered for Film Tax Credit of 25,000 leaving a trading loss of this accounting period of 50,000.

It is most beneficial for the company to

  • treat the loss attributable to FTR as being the loss surrendered for the Film Tax Credit and
  • leave the 50,000 of losses not attributable to FTR available for set off under ICTA88/S393A(1) or for surrender as group relief .

The amount carried forward into the completion period that is not attributable to FTR is 750,000. The total loss of this accounting period for the purposes of loss relief is therefore adjusted to 800,000. The options available for these losses, and the extent to which the company chooses 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 nil
Surrender as group relief where appropriate nil
Total 20,000

This leaves 780,000 available to carry forward.

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    
Loss surrendered for film tax credit 400,000      
Losses carried forward into completion AP   750,000    
         
APE 31 December 2010        
Losses brought forward   750,000    
Completion period loss     100,000 50,000
Loss surrendered for film tax credit     -100,000  
Loss utilised against Case III       -20,000
Losses carried forward   750,000   30,000
         
APE 31 December 2011        
Losses brought forward   750,000   30,000

 

 

  FTR losses non-FTR losses
APE 31 December 2009    
Production period loss 400,000 750,000
Surrendered for Film Tax Credit (400,000)  
Carried forward nil 750,000
APE 31 December 2010    
Losses brought forward nil 750,000
Completion period loss 100,000 50,000
Surrendered for Film Tax Credit (100,000)  
Set off against current period Case III   (20,000)
Carry forward   780,000