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HMRC internal manual

Film Production Company Manual

Calculation: surrenderable losses and Film Tax Credit - example - multi-period production

The following example illustrates how a film production company (FPC) that sustains a surrenderable loss can surrender that loss in return for a payable tax credit (FPC55100). In this case the production runs over two periods.

As with the additional deduction (FPC55050), the calculation of the payable credit is cumulative where the film takes more than one period to complete.


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

The film takes two periods of account to make, and the FPC incurs expenditure of £4m in the first period and £6m in the second. The commissioning distributor pays the FPC £5m in the first period and the remaining £4m in the second.

In order to establish the profit or loss made in each accounting period, the FPC should apply the income recognition rules set out in FA06/SCH4, rather than the amount which the distributor actually pays during each period (FPC20220). In this example, this is calculated on the basis of the proportion of total expenditure incurred in each period multiplied by the estimated total income.

First period

In the first period, estimated income is £3.6m (£4m/£10m x £9m). Of the total core expenditure of £4m, 80% is eligible for FTR, giving an additional deduction of £3.2m (100% x £4m x 80%) and total deductions in the period of £7.2m (£4m plus £3.2m).

The (adjusted) trading loss in the period is therefore £3.6m (estimated income of £3.6m less deductions of £7.2m). Because this is more than the £3.2m enhanceable expenditure, only £3.2m of the loss can be surrendered, giving a tax credit of £0.8m (25% x £3.2m).

Second period

In the second period, total expenditure to date is £10m, giving an additional deduction of £8m (=100% x £10m x 80%), less the £3.2m additional deduction claimed in the previous year, or £4.8m. Total estimated income is £9m, of which £3.6m has already been accounted for, giving estimated income for the period of £5.4m. Total deductions for the year equal £10.8m (core expenditure of £6m plus the additional deduction of £4.8m).

The trading loss for the period is therefore £5.4m (estimated income of £5.4m less deductions of £10.8m). Adding the loss previously surrendered gives £8.6m, more than the total enhanceable expenditure to date, of £8m, so only £4.8m can be surrendered, giving a tax credit of £1.2m (25% x £4.8m).

Cumulative effect

This means the tax credit is worth £2m over the two years (£0.8m plus £1.2m), the same as it would have been had the film been made in a single year.


  Period 1 Period 2
Expenditure incurred to end of period (all UK) £4m £10m
Enhanceable Expenditure (in this case 80% of total core) £3.2m £8m
Additional deduction to end of period (100% of enhanceable expenditure) £3.2m £8m
Less additional deduction claimed for earlier period(s) - (£3.2m)
Additional deduction due for the period £3.2m £4.8m
Estimated total income attributed to period £3.6m £5.4m
Expenditure attributed to period £4m £6m
Additional deduction due for the period £3.2m £4.8m
Post-FTR trading profit (loss) for the period after additional deduction (£3.6m) (£5.4m)
Surrenderable loss (lower of trading loss for the period and enhanceable expenditure) (£3.2m) £(4.8m)
(assuming £3.2m surrenderable loss of Period 1 surrendered for payable credit)