FPC30080 - Film Production
Companies: Losses: Example: Terminal losses surrendered
Company A is a film production company (FPC). It is making an
FTR-qualifying film, Film 1.
The trade in relation to the Film 1 commences on 3 July 2009.
The film is completed on 10 February 2010. The company sells Film 1
outright on 15 August 2010 and ceases to trade.
Company A is in a group as defined for group relief purposes
with Company B. Company B also carries on a trade in relation to a
film qualifying for Film Tax Relief. Company B’s trade in
relation to Film 2 commences on 17 March 2010.
Both companies draw up accounts to 31 December.
The accounting periods are therefore:
| Company A | Company B |
| 3 July to 31 December
2009 | 17 March to 31 December
2010 |
| Period ended 15 August
2010 | Year ended 31 December
2011 |
The computations of Company A show:
Company A: APE 31 December 2009
| Income from Film 1 | 100,000 |
| Costs of Film 1 | (850,000) |
| Film tax relief | (400,000) |
| Loss on Film 1 | (1,150,000) |
| |
| Other income – Case
III | 10,000 |
Company A’s computation for this period shows a Case I
loss of 1,150,000 on Film 1. 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 loss is restricted. It can only be
carried forward under ICTA88/S393(1).
The Case III profit therefore remains taxable and a loss of
1,150,000 is carried forward. Of this loss 750,000 is not
attributable to FTR; 400,000 is so attributable.
Company A: APE 15 August 2010 – Film 1 completed &
trade ceases
| Income from Film 1 | 500,000 |
| Costs of Film 1 | (150,000) |
| Film tax relief | (100,000) |
| Profit on Film 1 | 250,000 |
| |
| Other income – Case
III | 20,000 |
Company B: APE 31 December 2010 - Film 2 commences
| Income from Film 2 | 800,000 |
| Costs of Film 2 | (400,000) |
| Film tax relief | (300,000) |
| Profit on Film 2 | 100,000 |
| |
| Other income – Case
III | 20,000 |
Company A’s computation for the accounting period ended
31 December 2010 shows a profit of 250,000 on Film 1. 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 available.
The brought forward loss attributable to FTR (400,000) is
sufficient to cover the profits of the same trade (250,000).
The whole of the brought forward production period loss
not attributable to FTR (750,000) is 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 | 20,000 |
| Carry back against
profits of an earlier accounting period | 10,000 |
| Surrender as group relief
where appropriate | 120,000 |
| Total | 150,000 |
Of the full brought forward loss of 1,150,000 a total of
400,000 has been utilized. The remaining 750,000 would be available
to carry forward under ICTA88/s393(1) but for the fact that the
trade has now ceased. In normal circumstances this loss would be
stranded.
The company can instead elect to surrender the stranded loss
to Company B so that it can treat it as a loss brought forward in
the trade in relation to Film 2 in the next accounting period.
Company A chooses to surrender the full 750,000 to Company B.
Company B: APE 31 December 2011
| Income from Film 2 | 1,000,000 |
| Costs of Film 2 | (400,000) |
| Film tax relief | (200,000) |
| Profit on Film 2 | 400,000 |
| |
| Other income – Case
III | 50,000 |
Company B’s computation for this period shows a profit
of 400,000 on Film 2 and Case III income of 50,000.
The company claims to treat the loss surrendered by Company A
(750,000) as a loss brought forward in its trade in relation to
Film 2. The profit on Film 2 is therefore reduced to nil and a loss
of 350,000 is carried forward to the next accounting period under
ICTA88/s393(1). This loss will 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.
| Company A | Company B |
| 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) | |
| Carried back against Case
III of earlier period | | (10,000) | |
| Surrendered as group
relief | | (120,000) | |
| Carried forward to set
against future profits of Film 2 | 150,000 | 600,000 | |
| | | |
| APE 31 December 2011 | | | |
| Losses brought forward by
surrender from Company A | | | 750,000 |
| Set off against current
period profits of Film 2 | | | (400,000) |
| Loss carried forward | | | 350,000 |
