FPC30050 - Film Production Companies: Losses: Example: Film ineligible for FTR
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 aretherefore:
- 3 July to 31 December 2009
- Year ended 31 December 2010
- Year ended 31 December 2011
The computations show:
| Period ended 31 December 2009 | Amount |
|---|---|
| Income from the film | 100,000 |
| Costs of the film | (850,000) |
| Loss on film | (750,000) |
| Other income | 10,000 |
The computation for this period shows a trade loss of 750,000. This is a production accounting period and so the loss is restricted. It can only be carried forward under section 45B CTA 2010. The other income therefore remains taxable.
| APE 31 December 2010 – completion period | Amount |
|---|---|
| Income from the film | 100,000 |
| Costs of the film | (150,000) |
| Loss on film | (50,000) |
| Other income | 20,000 |
This is the completion period. The computation shows a trade loss of 50,000.
The trade 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:
- To set against other profits of the same accounting period. (This would reduce the other income profit of this accounting period).
- To carry back against profits of the accounting period ended 31 December 2009. (This would reduce the other income profit of the earlier accounting period).
- To surrender as group relief where appropriate.
Any remaining loss is available to carry forward under section 45A and 45B CTA 2010.
The company chooses to set off the losses as follows:
- 20,000 against other profits of the same accounting period, and
- 10,000 against profits of the earlier accounting period
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 a later accounting period so that they can betreated as a loss of that later period for the purposes of loss relief. A maximum of750,000 is derived from the earlier production accounting period and is carried forward as part of the 770,000.
| APE 31 December 2011 | Amount |
|---|---|
| Income from the film | 1,000,000 |
| Costs of the film | (100,000) |
| Profit on film | 900,000 |
| Other income | 50,000 |
The computation for this period shows a trade 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.