APC55040 - Calculation: additional deduction - single-period productions

S1216CG Corporation Tax Act 2009

A Television Production Company (TPC) entitled to Television Tax Relief (TTR) can claim an additional deduction in computing the taxable profits of an animation trade.

The effect of the additional deduction is to increase the level of expenditure for tax purposes. This decreases the amount of Corporation Tax which would otherwise be payable. It may also create a loss, or greater losses, which are then available to be surrendered for the payable credit.

Example: Production completed in single period

A TPC makes a qualifying British animation for £300k, all of which is UK core expenditure. It retains and exploits the animation in the UK, receiving income of £600k and therefore generating a profit of £300k on which it would normally pay Corporation Tax. The company is subject to Corporation Tax at a rate of 23%. The animation is completed within a single accounting period.

Expenditure on the animation is eligible for TTR. The TPC is entitled to an additional deduction in computing its profits/losses from the separate trade relating to the production of the animation. Since all of the core expenditure is UK expenditure, the additional deduction is calculated by reference to 80% of the total core expenditure. So in this example

• Income is £600k
• Expenditure is (£300k)
• Trading profit before TTR is £300k
• Enhanceable expenditure (80% of UK core expenditure of £300k) is (£240k)
• Additional deduction (enhanceable expenditure of £240k x 100%) is (£240k)
• Trading profit after TTR is £60k

Without TTR, the TPC would have been liable to pay Corporation Tax of £69,000 (23% x the pre-TTR profit of £300k).

TTR reduces the Corporation Tax liability to £13,800 (23% x the adjusted profit of £60k), thereby gaining a benefit of £55,200.

In this case, the TTR is worth 18.4% of the total core expenditure (APC50010).