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HMRC internal manual

Television Production Company Manual

Taxation: profit/loss calculation: estimating amounts

S1216BF Corporation Tax Act 2009 (CTA 2009)

The treatment for calculating taxable profits of the television programme activities of Television Production Companies (TPCs) (TPC10110) may involve estimating the total income and total costs of a programme (TPC10100). The rules set out the basis on which such estimates are made.

The aim of these rules is to ensure that the income that is recognised is in accordance with the substance of transactions in the same way that would be expected for statutory accounts.

To be income, sums should be recognised using the same principles that are set out in Generally Accepted Accounting Practice (GAAP).  Section 23 of FRS102 requires that revenue from the rendering of services and from construction contracts is recognised with reference to the stage of completion of the transaction at the end of the reporting period (where the outcome can be estimated reliably). 

In effect these principles embody the principle that income is recognised as it is earned.  Other accounting standards dealing with revenue are Application Note G to FRS 5 and IAS18, neither of which contain principles that are substantially different to section 23 of FRS102.

For TPCs the estimate to be made is at the end of the accounting period using all the information available at that time, on a fair and reasonable basis and taking into consideration all relevant circumstances. It follows, under the principles in FRS5 and IAS18, that speculative income, where potential buyers have not yet been identified, would not be brought into account. But where a seller has entered into a transaction with a buyer, revenue should be recognised in accordance with the substance of that transaction.

If the revenue does not arise until the occurrence of a critical event, it is not recognised until that event occurs only if the occurrence is outside the control of the seller. The delivery of the completed programme is regarded as an event that is within the seller’s control, and does not delay recognition. Similarly, the mere fact that the buyer has to accept the completed programme does not delay recognition.

Speculative productions

Almost all television programmes are commissioned and will have a measure for estimated total income from the outset.

However, some productions that come within this legislation may be highly speculative. There may be little, if any, income that can be brought into account in calculating profits for an accounting period.

Nevertheless, it is likely that there will be a reliable estimate for the estimated total cost and so the costs to be debited in each accounting period will be the additional costs reflected in the work done while the income may well be zero.