CREC039100 - Taxation: examples: single & two-period productions
The following two examples show how Chapter 2 Part 14A Corporation Tax Act (CTA)听2009 applies in calculating the profits/losses for the separate production trade of a production company over one and two accounting periods.听
In the examples, none of the costs are disallowed under the Taxes Acts.听
The examples show how expenditure credits should be added to profit/loss once it has been calculated. Round numbers have been used for ease听鈥� in reality, the amount of credit due will vary depending on how much expenditure is qualifying expenditure, and the proportion of UK expenditure. For guidance on how to calculate the amount of expenditure credit due for an accounting period, please see Chapter 6听of this manual.听
The examples are based on a TV production; the same principles apply to films and video games.听
听
Example 1听
A production company听is commissioned by a broadcaster to make a television programme听for听a听budget of 拢1.52m and听agrees to sell all the rights in听the programme听to the broadcaster for 拢1.55m. The television programme听is completed within a single accounting period.听
The production company intends to claim an Audio-Visual Expenditure Credit (AVEC)听for the production, so the separate production trade rules apply.听
First, find the profit or loss of the separate trade for the period听
For tax purposes,听the production company鈥檚 profit from the trade of producing the programme听(before expenditure credit)听is 拢1.55m - 拢1.52m = 拢30办.听
Second, add the expenditure credit to the profit or loss for the period听
The听company calculates that the听value of the expenditure credit for the period is 拢400k. This is added听to the trade profit to give profits chargeable to tax of 拢430k.听
听
Example 2听
The situation is similar to听Example 1听but the programme听takes longer to complete.听
The rights sale is听still agreed at 拢1.55m. At the end of the first accounting period,听the production company听has spent 拢1m听of the 拢1.52m budget, and in the second period it spends the remaining听拢520办. Again, the separate trade rules apply because the company wishes to claim AVEC.听
The profits in each accounting period are calculated as follows:听
Period 1听
-听 |
Amount听(拢)听 |
Notes听 |
Expenditure incurred by end of period听 |
1,000,000听 |
Out of total expected costs of 拢1.52m听 |
Income treated as earned by end of period听 |
1,020,000听 |
Expected total income is听拢1.55m. The extent to which this is allocated听to Period 1 mirrors the extent to which total expected costs fall within Period 1. |
Trade profit听 |
20,000听 |
-听 |
Plus听expenditure credit听 |
270,000听 |
This must be added on听at the end 鈥� it should not be included as income in the (C/T) x I formula听 |
Profit chargeable to tax听 |
290,000听 |
-听 |
听
Period 2听
-听 |
Amount听(拢)听 |
Difference听(拢)听 |
Notes听 |
Expenditure incurred by end of period听 |
1,520,000听 |
-听 |
-听 |
Increase in expenditure incurred over previous听period听 |
-听 |
520,000听 |
拢1.52m less 拢1m听 |
Income treated as earned by end of period听 |
1,550,000听 |
-听 |
(C/T) x I = (拢1.52m/拢1.52m) x 拢1.55m = 拢1.55m听 |
Increase in income treated as earned over previous听period听 |
-听 |
530,000听 |
拢1.55m听less 拢1.02m听 |
Trade profit听 |
-听 |
10,000听 |
-听 |
Plus听expenditure credit听 |
-听 |
140,000听 |
Added at end, as in Period 1听 |
Profit听chargeable to tax听 |
-听 |
150,000听 |
-听 |