FPC30100 - Film Production Companies: Losses: Losses surrendered for payable tax credit
CTA09/S1202(4)
Where a company makes a claim for Film Tax Credit it surrenders a part of its surrenderable loss for the credit. Once a loss is utilised in this way it ceases to be a part of the trading loss for that accounting period.
Example
A film production company (FPC) produces one film that qualifies for Film Tax Relief (FTR).
The trade in relation to the film commences on 3 July 2019 and the film is completed on 10 February 2020. The company draws up accounts to 31 December. The accounting periods are therefore:
- 3 July to 31 December 2019
- Year ended 31 December 2020
- Year ended 31 December 2021
The computations show:
| APE 31 December 2019 | Amount |
|---|---|
| Income from the film | 100,000 |
| Costs of the film | 850,000 |
| Film tax relief - additional deduction | 400,000 |
| Loss on film | (1,150,000) |
| Other income | 10,000 |
The computation for this period shows a trade loss of 1,150,000. The company chooses to surrender the maximum amount of this loss for the Film Tax Credit.
The amount of its surrenderable loss (FPC55100) is the lesser of
- the amount of the available loss for the period - 1,150,000; and
- the available qualifying expenditure - 400,000.
The maximum surrenderable amount is therefore 400,000 and this is surrendered for Film Tax Credit of 100,000. The loss of the period is reduced by 400,000 leaving 750,000.
This is a production accounting period and so loss relief is restricted. The 750,000 loss can only be carried forward under CTA10/S45B. The other income therefore remains taxable and a loss of 750,000 is carried forward under CTA10/S45B.
It is most beneficial to the company to
- treat the loss attributable to FTR as being the loss surrendered for the Film Tax Credit and
- carry forward the 750,000 of losses not attributable to FTR .
| APE 31 December 2020 - completion period | Amount |
|---|---|
| Income from the film | 100,000 |
| Costs of the film | 150,000 |
| Film tax relief - additional deduction | 100,000 |
| Loss on film | (150,000) |
| Other income | 20,000 |
This is the completion period. The computation shows a trade loss of 150,000. The company chooses to surrender the maximum amount of the trading loss of the year for the Film Tax Credit.
The amount of the company’s surrenderable loss for this period is the lesser of
- the amount of the available loss for the period - 150,000 + 750,000: 900,000 and
- the available qualifying expenditure - 100,000.
The maximum surrenderable amount is therefore 100,000 and this is surrendered for Film Tax Credit of 25,000 leaving a trading loss of this accounting period of 50,000.
It is most beneficial for the company to
- treat the loss attributable to FTR as being the loss surrendered for the Film Tax Credit and
- leave the 50,000 of losses not attributable to FTR available for set off under CTA10/S37 or for surrender as group relief.
The amount carried forward into the completion period that is not attributable to FTR is 750,000. The total loss of this accounting period for the purposes of loss relief is therefore adjusted to 800,000. The options available for these losses, and the extent to which the company chooses to utilise those options are as follows:
| - | Amount of loss |
|---|---|
| Set against other profits of the same accounting period | 20,000 |
| Carry back against profits of an earlier accounting period | nil |
| Surrender as group relief where appropriate | nil |
| Total | 20,000 |
This leaves 780,000 available to carry forward.
The following table tracks the use of the losses in the accounting periods:
| - | FTR | non-FTR | FTR | non-FTR |
|---|---|---|---|---|
| APE 31 December 2019 | - | - | - | - |
| Production period loss | 400,000 | 750,000 | - | - |
| Loss surrendered for film tax credit | 400,000 | - | - | - |
| Losses carried forward into completion AP | 0 | 750,000 | - | - |
| APE 31 December 2020 | - | - | - | - |
| Losses brought forward | - | 750,000 | - | - |
| Completion period loss | - | - | 100,000 | 50,000 |
| Loss surrendered for film tax credit | - | - | -100,000 | - |
| Loss utilised against other income | - | - | - | -20,000 |
| Losses carried forward | - | 750,000 | 0 | 30,000 |
| APE 31 December 2021 | - | - | - | - |
| Losses brought forward | - | 750,000 | 0 | 30,000 |
| - | FTR losses | non-FTR losses |
|---|---|---|
| APE 31 December 2019 | - | - |
| Production period loss | 400,000 | 750,000 |
| Surrendered for Film Tax Credit | (400,000) | - |
| Carried forward | nil | 750,000 |
| APE 31 December 2020 | - | - |
| Losses brought forward | nil | 750,000 |
| Completion period loss | 100,000 | 50,000 |
| Surrendered for Film Tax Credit | (100,000) | - |
| Set off against current period other income | - | (20,000) |
| Carry forward | - | 780,000 |