An FPC is set up to produce a single film that does not
qualify for Film Tax Relief (FTR).
The trade in relation to the film commences on 3 July 2009
and the film is completed on 10 February 2010. The company draws up
accounts to 31 December. The accounting periods are therefore:
The computations show:
| Income from the film | 100,000 |
| Costs of the film | (850,000) |
| Loss on film | (750,000) |
| Other income – Case III | 10,000 |
The computation for this period shows a Case I loss of
750,000. This is a production accounting period and so the loss is
restricted. It can only be carried forward under section 393(1)
ICTA 1988. The Case III profit therefore remains taxable.
| Income from the film | 100,000 |
| Costs of the film | (150,000) |
| Loss on film | (50,000) |
| Other income – Case III | 20,000 |
This is the completion period. The computation shows a Case I
loss of 50,000.
The trading loss brought forward from the earlier production
period is
not attributable to FTR so is treated as a loss of
this accounting period for the purposes of loss relief. The loss of
this accounting period for the purposes of loss relief is therefore
increased to 800,000.
The increased loss is available under section 393A(1) ICTA
1988:
Any remaining loss is available to carry forward under section
393(1) ICTA 1988.
The company chooses set off the losses as follows:
This leaves a loss of 770,000 (800,000 - 30,000) to carry
forward.
It is advantageous for the company to treat the loss of the
completion period as set off against other profits, allowing the
company to carry forward the losses of the earlier production
period to carry forward to a later accounting period so that they
can be treated as a loss of that later period for the purposes of
loss relief. A maximum of 750,000 is derived from the earlier
production accounting period and is carried forward as part of the
770,000.
| Income from the film | 1,000,000 |
| Costs of the film | (100,000) |
| Profit on film | 900,000 |
| Other income – Case III | 50,000 |
The computation for this period shows a Case I profit of
900,000. Any brought forward loss is firstly set against this
profit. The whole of the brought forward loss (770,000) is utilised
against this profit leaving no part of the production period loss
available to carry forward again.
