APC20530 - Taxation: example 3 - budgeted expenditure exceeded
This example shows how Part 15A Corporation Tax Act 2009 operates to arrive at the profits/losses of a Television Production Company (TPC) producing a programme whose costs increase during production, with the final expenditure exceeding the original estimate.
A TPC is commissioned by a broadcaster to make a programme for an agreed budget of £1.52m and agrees to sell all the rights in the programme to the broadcaster for £1.55m. At the end of the first accounting period the TPC has spent £1m and still expects to complete the programme for £1.52m. In the second accounting period, the company spends a further £530k. It goes £10,000 over budget. The programme is not eligible for TTR.
In the examples, none of the costs are disallowed under the Taxes Acts.
The profits in each Accounting Period are calculated as follows.
Period 1
| - | Period 1 total | Notes |
|---|---|---|
| Expenditure incurred by end of period | £1m | Out of total expected costs of £1.52m |
| Income treated as earned by end of period | £1.02m | Expected total income of £1.55m. The extent to which this is allocated to Period 1 mirrors the extent to which total expected costs fall within Period 1. £1.02m = £1.55m x £1m/£1.52m |
| Profit | £20k | - |
Period 2
| - | Period 2 total | Increase compared to Period 1 | Notes |
|---|---|---|---|
| Expenditure incurred by end of period | £1.53m | - | - |
| Increase in expenditure incurred over previous period | - | £0.53m | £1.53m less £1m |
| Income treated as earned by end of period | £1.55m | - | - |
| Increase in income treated as earned over previous period | - | £0.53m | £1.55 less £1.02m |
| Profit | - | £nil | - |