FPC20530 - Film Production Companies: Taxation: Example 3: Budgeted expenditure exceeded
This example shows how FA06/SCH4 operates to arrive at the
profits/losses of a film production company (FPC) producing a film
whose costs increase during production, with the final expenditure
exceeding the original estimate.
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 still expects to
complete the film for £15.2m. In the second accounting period,
the company spends a further £5.3m, i.e. it goes £100,000
over budget. 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 | £15.3m | ||
| Increase in expenditure incurred over previous period | £5.3m | £15.3m 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 | £nil |
