The cost recovery method allows a deduction in a relevant period up to the amount of income received from the exploitation of the master version of the film in that relevant period. It only applies where that income exceeds the amount deductible under the income matching method and there is unrelieved expenditure.
A film is in the course of production in year 1 where £2.5million of expenditure is incurred.
In year 2 the film is completed and further expenditure of £1.5million is incurred, thus total expenditure on production of the master version of the film is £4million.
In year 2 the film is released and generates income of £3million out of a total estimated income of £8million.
In year 3 the film generates a further £2million of income but the total estimated income for the film is revised down to £6million.
In year 4 the film generates income of £1million. The film is unlikely to generate more than a negligible amount of income in future and it is accepted that for the purposes of writing-off the expenditure the expected future income is nil.
Relief under the cost recovery method will be as follows:
| Year | Unrelieved cost | Income | Cost recovery method |
| 1 | £2.5million | nil | nil |
| 2 | £4.0million | £3.0million | £3.0million |
| 3 | £1.0million | £2.0million | £1.0million |
| 4 | nil | £1.0million | nil |
As the cost recovery method provides an additional deduction
over and above the amount that is due under the income matching
method it is only applicable where the income matching method gives
a figure lower than the income received in the relevant period.
In the example above, if the estimated future income at the
end of year 2 is £0.5million the income matching method
provides a deduction of £3.5million for that year (see
BIM56220 example 2). As the
‘income matching’ deduction exceeds the income for the
period there is no additional amount to claim under the cost
recovery method.
