FPC20510 - Film Production Companies: Taxation: Examples 1 & 2: One- period and two-period productions
The following two examples illustrate how FA06/SCH4 apply in
calculating the profits/losses of a film production company (FPC)
producing a film over one and two accounting periods.
Example 1
An FPC is commissioned by a studio to make a film for an agreed
budget of £15.2m and agrees to sell all the rights in the film
to the studio for £15.5m. The film is completed within a
single accounting period. The film is not eligible for Film Tax
Relief (FTR).
For the purposes of FA06/SCH4 the FPC’s profit from the
trade of producing the film is £0.3m (£15.5 -
£15.2m).
Example 2
The situation is similar to Example 1 but the film takes longer
to complete.
An FPC is commissioned by a studio to make a film for an
agreed budget of £15.2m and agrees to sell all the rights in
the film to the studio for £15.5m. At the end of the first
accounting period the FPC has spent £10m, and in the second it
spends a further £5.2m. The film is not eligible for Film Tax
Relief (FTR).
The profits in each Accounting Period are calculated as
follows:
Period 1
| Expenditure incurred by end of period | £10m | Out of total expected costs of £15.2m |
| Income treated as earned by end of period | £10.2m | Expected total income of
£15.5m. The extent to which this is allocated to Period 1
mirrors the extent to which total expected costs fall within Period
1.
£10.2 = £15.5m x £10m/£15.2m |
| Profit | £0.2m |
Period 2
| Expenditure incurred by end of period | £15.2m | ||
| Increase in expenditure incurred over previous period | £5.2m | £15.2m less £10m | |
| Income treated as earned by end of period | £15.5m | ||
| Increase in income treated as earned over previous period | £5.3m | £15.5 less £10.2m | |
| Profit | £0.1m |
