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HMRC internal manual

Film Production Company Manual

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HM Revenue & Customs
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Calculation: surrenderable losses and Film Tax Credit - examples - single-period productions

The following examples illustrate how film production companies (FPCs) that sustain a surrenderable loss can surrender that loss in return for a payable tax credit (FPC55100). In each case the production is completed within a single period.

Example 1: Limited-budget film

An independent FPC makes a film with total core expenditure of £10m, all of which is UK expenditure. The film was commissioned by an unrelated distributor which pays £9m for it.

Income   £9m
     
Expenditure   £10m
Pre-FTR profit (loss)   (£1m)
Enhanceable expenditure £8m  
(UK core expenditure of £10m x 80%)    
Additional deduction   (£8m)
(Rate of enhancement applied to enhanceable expenditure = 100%)    
Post-FTR profit (loss)    (£9m)

The surrenderable loss is the lesser of

  • the trading loss: £9m and
  • the enhanceable expenditure on which the additional deduction for period: £8m.

In this case, the film production company can surrender up to £8m.

The amount of credit due is:

the payable credit rate (for a limited-budget film): 25% 

multiplied by

the loss surrendered: £8m,

giving a payment £2m (assuming that the maximum amount of loss is surrendered). This is equal to 20% of the total core expenditure.

Example 2: Large budget film

An independent film production company (FPC) produces a film with total core expenditure of £100m, all of which is UK expenditure. The film was commissioned by an unrelated distributor which pays £84m for it.

Income   £85m
     
Expenditure   £100m
Pre-FTR profit (loss)   (£15m)
Enhanceable expenditure £80m  
(UK core expenditure of £100m x 80%)    
Additional deduction   (£64m)
(80% x Enhanceable expenditure of £80m)    
Post-FTR profit (loss)   (£79m)

The surrenderable loss is the lesser of

  • the trading loss: £79m and
  • the enhanceable expenditure on which the additional deduction for period: £80m.

In this case, the film production company can surrender up to £79m.

The amount of credit due is the credit rate of 20% multiplied by the loss surrendered, giving a payment of £15.8m (£79m x 20%). This is equal to 15.8% of the total core expenditure.

The amount of credit due is:

the payable credit rate (for a large-budget film): 20% 

multiplied by

the loss surrendered: £79m,

giving a payment £15.8m (assuming that the maximum amount of loss is surrendered). This is equal to 20% of the total core expenditure.

The FPC would therefore make a profit, post tax, of £800,000