A film production company (FPC) produces Film 1, qualifying
for FTR. The company draws up accounts to 31 December. The trade in
relation to Film 1 commences on 3 July 2009. The film is completed
on 10 February 2010. The company ceases to trade relating to Film 1
on 15 August 2010 when it sells Film 1 outright.
During the period the company starts to make a second
qualifying film, Film 2. The trade in relation to Film 2 commences
on 17 March 2010.
The accounting periods are therefore:
3 July to 31 December 2009
Year ended 31 December 2010
Year ended 31 December 2011
The computations show:
| Income from Film 1 | 100,000 |
| Costs of Film 1 | (850,000) |
| Film tax relief – additional deduction | (400,000) |
| Loss on Film 1 | (1,150,000) |
| Other income – Case III | 10,000 |
The computation for this period shows a Case I loss of
1,150,000 on Film 1. Of this 750,000 is not attributable to FTR;
400,000 is attributable to FTR.
The company chooses not to surrender any part of this loss
for the film tax credit. This is a production accounting period and
so the use of the loss is restricted. It can only be carried
forward under ICTA88/S393(1).
The Case III profit remains taxable and a loss of 1,150,000
is carried forward.
| Film 1 | Film 2 | Other | |
| Income from Film | 500,000 | 800,000 | |
| Costs of Film | (150,000) | (400,000) | |
| Film tax relief – additional deduction | (100,000) | (300,000) | |
| Profit on Film 1 | 250,000 | 100,000 | |
| Other income – Case III | 20,000 |
The computation for this period shows a profit of 250,000 on
Film 1 and a profit of 100,000 on Film 2. This is a completion
accounting period and a cessation accounting period in respect of
Film 1.
The brought forward loss of 1,150,000 reduces the profit on
Film 1 to nil leaving a loss of 900,000. Under normal circumstances
this loss would only be available to carry forward to the next
accounting period for set off against profits of the same trade.
But, if any part of the loss is not attributable to FTR and is
derived from a production period it can instead be treated as a
loss of the later accounting period for the purposes of loss
relief.
The brought forward loss that is attributable to FTR
(400,000) is sufficient to cover the profits of the same trade,
leaving 150,000 of those losses unused.
The whole of the brought forward production period loss
not attributable to Film Tax Relief (750,000) can
now treated as a loss of this accounting period for the purposes of
loss relief. The options available for these losses, and the extent
to which the company chooses to utilise those options are as
follows:
| Set against other profits of the same accounting period | 120,000 |
| Carry back against profits of an earlier accounting period | 10,000 |
| Surrender as group relief where appropriate | 200,000 |
| Total | 330,000 |
Of the full brought forward loss of 1,150,000 a total of
580,000 has been utilized (250,000 of the losses attributable to
FTR plus 330,000 of losses not so attributable). The remaining
570,000 would be available to carry forward under section 393(1)
ICTA 1988 but for the fact that the trade has now ceased. In normal
circumstances this loss would be stranded.
The company instead elects to treat the stranded loss as a
loss brought forward in the trade in relation to Film 2 in the next
accounting period.
| Income from Film 2 | 1,000,000 |
| Costs of Film 2 | (400,000) |
| Film tax relief – additional deduction | (200,000) |
| Profit on Film 2 | 400,000 |
| Other income – Case III | 50,000 |
The computation for this period ended 31 December 2011 shows
a Case I profit in Film 2 of 400,000. This is reduced to nil by the
loss treated as brought forward in the trade of 570,000.
The remaining 170,000 is now available to carry forward into
the next accounting period as a loss brought forward in the trade
in relation to Film 2. This loss will now only be available to
utilise against profits of the trade in respect of Film 2. Note
that the special treatment afforded to some production period
losses does not carry over into the Film 2 trade.
The following table tracks the losses in the accounting
periods.
| Film 1 | Film 2 | ||
| FTR losses | non-FTR losses | ||
| APE 31 December 2009 | |||
| Production period loss carried forward into completion period | 400,000 | 750,000 | |
| APE 31 December 2010 | |||
| Losses brought forward | 400,000 | 750,000 | |
| Set off against current period profit of Film 1 | (250,000) | ||
| Set off against current period Case III | (20,000) | ||
| Set off against current period profits of Film 2 | (100,000) | ||
| Carried back against Case III of earlier period | (10,000) | ||
| Surrendered as group relief | (200,000) | ||
| Carried forward to set against future profits of Film 2 | 150,000 | 420,000 | |
| APE 31 December 2011 | |||
| Losses brought forward | 570,000 | ||
| Set off against current period profits of Film 2 | (400,000) | ||
| Loss carried forward | 170,000 | ||
