CREC039400 - Taxation: examples: retained rights
皇冠体育app following example shows 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 when the company retains听rights in the production which generate further income听and costs.听
In the example, none of the costs are disallowed under the Taxes Acts.听
皇冠体育app听example shows how expenditure credits should be added to profit/loss once it has been calculated. Round numbers have been used for ease 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 of this manual.听
皇冠体育app example is based on a TV听production; the same principles apply to听films and video games.听
听
Example听
A TV production company听is commissioned by a broadcaster to make a children鈥檚 TV听series for transmission on a UK terrestrial network. 皇冠体育app total cost of recording, editing and production is estimated at the outset as being 拢700,000. 皇冠体育app broadcaster contracts to pay 拢1.5m for the right to broadcast the programme听once it is completed.听
皇冠体育app production company will retain听the residual rights to exploit the programme听in other territories. It has extensive experience of selling programmes overseas and broadcasters in a number of countries express an interest. Based on its previous听experience of selling similar material, the company anticipates听sales of at least a further 拢1m,听and further legal costs of 拢100,000 in securing these contracts. 皇冠体育app total estimated expenditure for the programme听is therefore 拢800,000听at the outset.听
At the end of the first accounting period,听the company has听spent 拢900,000 on recording, editing and production and has听completed the programme. It has spent 拢50,000 on听negotiating further contracts overseas but听it has not yet secured any.听
When computing its profits for Corporation Tax purposes,听the production company must estimate total income from the programme听and total costs. At the end of the accounting period,听it has a听contract to sell the UK rights for 拢1.5m,听that it has fulfilled at a cost of 拢900,000. Overseas broadcasters have expressed interest, but this does not give the production听company a realistic and quantifiable expectation of income. 皇冠体育app estimated total income at the end of the first accounting period is therefore 拢1.5m.听
皇冠体育app estimated total costs at the outset were 拢800,000,听but the programme听actually cost听拢900,000 to make and the company still expects that it is going to incur听拢100,000 in legal costs to secure the overseas contracts. 皇冠体育app total estimated costs are therefore 拢1m. Of this estimated amount 拢950,000 is represented in work done: 拢900,000 on completing the programme听itself, and 拢50,000 incurred so far on securing overseas contracts.听
皇冠体育app profit for听the accounting period is therefore:听
-听 |
Amount听(拢)听 |
Notes听 |
Expenditure incurred by end of period听 |
950,000听 |
Out of total expected costs of 拢1m听 |
Income treated as earned by end of period听 |
1,425,000听 |
Expected total income is听拢1.5m. 皇冠体育app extent to which this is allocated听to this period听mirrors the extent to which total expected costs fall within the听period. |
Trade profit听 |
475,000听 |
-听 |
Plus听expenditure credit听 |
290,000听 |
This must be added on at the end 鈥� it should not be included as income in the (C/T) x I formula听 |
Profit chargeable to tax听 |
765,000听 |
-听 |