FPC55050 - Calculation: additional deduction - multi-period productions
CTA2009/S1200
Where the production of a film covers more than one period of account, Film Tax Relief (FTR) operates on a cumulative basis. This means that:
- In the first period of account the level of the film production company’s (FPC’s) enhanceable expenditure is determined by the amount of core expenditure incurred within that period.
- In subsequent periods of account, including the final period, the level of the enhanceable expenditure is calculated by reference to total expenditure incurred by the FPC to date, taking account of FTR received in earlier periods.
Example: production continues for several periods
An FPC makes a film with total core expenditure of £100m, of which 75% is incurred on film-making in the UK, and 25% incurred on film-making outside the UK. The film is produced over three years.
The FPC is eligible for FTR. The rate of enhancement is 100% (FPC55030).
Over the three accounting periods, the profile of core expenditure is:
| - | UK (£m) | Non UK (£m) | Total Cumulative (£m) |
|---|---|---|---|
| First period | 35 | 0 | 35 |
| Second period | 35 | 10 | 80 |
| Third period | 5 | 15 | 100 |
| Total expenditure | 75 | 25 | 100 |
First Period
In the first period of account, because all the core expenditure is UK core expenditure, FTR is calculated on the basis of 80% of the total core expenditure, or £28m (= 80% x £35m). The additional deduction is £28m (£28m x the rate of enhancement, 100%).
Second period
At the end of the second period of account, the total core expenditure to date is £80m, of which £70m is UK core expenditure. Because UK core expenditure is greater than 80% of total core expenditure (80% x £80m = £64m), FTR is provided on the basis of 80% of the total core expenditure incurred to date (FPC5520). The additional deduction is £64m (£64m x the rate of enhancement, 100%).
However, £28m of FTR has been claimed in the previous accounting period, leaving £36m (= £64m less £28m) to be claimed in the second period.
Third period
At the end of the third period of account, total core expenditure is £100m, of which £75m is UK core expenditure. Because UK core expenditure is less than 80% of the total core expenditure (£100m x 80%), the film production company is eligible for FTR on the full £75m. The additional deduction is therefore £75m (= £75m x 100%).
Because an additional deduction of £64m has been claimed to date, this leaves £11m (= £75m less £64m) to be claimed in the third accounting period.
Cumulative effect
The cumulative effect at the end of the three periods of account is that FTR is provided on the 75% of core expenditure that was also UK expenditure.
Summary
| - | Period 1 | Period 2 | Period 3 |
|---|---|---|---|
| UK Core Expenditure (cumulative) | £35m | £70m | £75m |
| Non-UK Core Expenditure (cumulative) | £nil | £10m | £25m |
| Total Core Expenditure (cumulative) | £35m | £80m | £100m |
| UK core expenditure as percentage of total | 100% | 87.5% | 75% |
| Enhanceable expenditure to end of period (lesser of UK core expenditure or 80% of total) | £28m (80% of total) | £64m (80% of total) | £75m (UK core) |
| Additional deduction to end of period (100% of enhanceable expenditure) | £28m | £64m | £75m |
| Less additional deduction claimed for earlier period(s) | - | (£28m) | (£64m) |
| Additional deduction due for the period | £28m | £36m | £11m |
Whether or not the company gets a reduction in corporation tax liability, or a payable tax credit, depends on how much income the company receives and whether it makes a profit.