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HMRC internal manual

Film Production Company Manual

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HM Revenue & Customs
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Calculation: additional deduction - multi-period productions

CTA2009/S1200

Where the production of a film covers more than one period of account Film Tax Relief (FTR) operates on a cumulative basis. This means that:

  • In the first period of account the level of the film production company’s (FPC’s) enhanceable expenditure is determined by the amount of core expenditure incurred within that period.
  • In subsequent periods of account, including the final period, the level of the enhanceable expenditure is calculated by reference to total expenditure incurred by the FPC to date, taking account of FTR received in earlier periods.

Example: production continues for several periods

An FPC makes a film with total core expenditure of £100m, of which 75% is incurred on film-making in the UK, and 25% incurred on film-making outside the UK. The film is produced over three years.

The FPC is eligible for FTR and, because the core expenditure exceeds £20m, the rate of enhancement is 80% (FPC55030).

Over the three accounting periods, the profile of core expenditure is:

  UK (£m) Non UK (£m) Total Cumulative (£m)
       
First period 35   35
Second period 35 10 80
Third period 5 15 100
Total expenditure 75 25 100

First Period

In the first period of account, because all the core expenditure is UK core expenditure, FTR is calculated on the basis of 80% of the total core expenditure, or £28m (= 80% x £35m). The additional deduction is £22.4m (£28m x the rate of enhancement, 80%).

Second period

At the end of the second period of account, the total core expenditure to date is £80m, of which £70m is UK core expenditure. Because UK core expenditure is greater than 80% of total core expenditure (80% x £80m = £64m), FTR is provided on the basis of 80% of the total core expenditure incurred to date. The additional deduction is £51.2m (£64m x the rate of enhancement, 80%).

However, £22.4m of FTR has been claimed in the previous accounting period, leaving £28.8m (= £51.2 less £22.4m) to be claimed in the second period.

Third period

At the end of the third period of account, total core expenditure is £100m, of which £75m is UK core expenditure. Because UK core expenditure is less than 80% of the total core expenditure, the film production company is eligible to FTR on the full £75m. The additional deduction is therefore £60m (= £75m x 80%).

Because an additional deduction of £51.2m has been claimed to date, this leaves £8.8m (= £60m less £51.2) to be claimed in the third accounting period.

Cumulative effect

The cumulative effect at the end of the three periods of account is that FTR is provided on the 75% of core expenditure that was also UK expenditure.

Summary

  Period 1 Period 2 Period 3
       
UK Core Expenditure (cumulative) £35m £70m £75m
Non-UK Core Expenditure (cumulative) £nil £10m £25m
Total Core Expenditure (cumulative) £35m £80m £100m
UK core expenditure as percentage of total 100% 87.5% 75%
Enhanceable expenditure to end of period (lesser of UK core expenditure or 80% of total) £28m    
(80% of total ) £64m
(80% of total) £75m
(UK core)    
  Additional deduction to end of period (80% of enhanceable expenditure) £22.4m
  £51.2m £60m    
  Less additional deduction claimed for earlier period(s) - (£22.4m) (£51.2m)
  Additional deduction due for the period £22.4m £28.8m £8.8m