FPC55040 - Calculation: additional deduction - single-period productions

CTA2009/S1200

A film production company (FPC) entitled to Film Tax Relief (FTR) can claim an additional deduction in computing the taxable profits of the film-making activities. The effect of the additional deduction is to increase the level of expenditure for tax purposes.

The effect of the addition deduction will be to decrease the amount of corporation tax which would otherwise be payable, or create greater losses which are then available to be surrendered for the payable credit.

Example: Production completed in single period

An FPC makes a qualifying British film for £3m, all of which is UK core expenditure (FPC50010). It retains and exploits the film in the UK, receiving income of £6m and therefore generating a profit of £3m on which it would normally pay corporation tax. The company is subject to Corporation Tax at a rate of 19%. The film is completed within a single accounting period.

Expenditure on the film is eligible for FTR. The FPC is entitled to an additional deduction in computing its profits/losses from the separate trade relating to the production of the film. 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 = £6m
• Expenditure = (£3m)
• Trading profit before FTR = £3m
• Enhanceable expenditure (80% of UK core expenditure of £3m) = £2.4m
• Additional deduction (enhanceable expenditure x rate of enhancement: £2.4m x 100%) = (£2.4m)
• Trading profit after FTR = £0.6m

Without FTR, the FPC would have been liable to pay corporation tax of £570,000 (19% x the pre-FTR profit of £3m).

FTR reduces the corporation tax liability to £114,000 (19% x the adjusted profit of £0.6m), thereby gaining a benefit of £456,000.

In this case, the FTR is worth 15.2% of the total core expenditure (FPC55030).