BIM51455 - Broadcasters: cash bids

The 1990 Broadcasting Act (BA90) provides for the regulation of commercial broadcasting media including television, radio and other services such as Oracle and Prestel. The Act establishes regulatory bodies (for example, `Independent Television Commission', `Radio Authority'). These bodies grant licences by open competition between interested parties.

Section 15 of the BA90 covers applications for `Channel 3' television licences. Section 15 (7) provides that `cash bid' means ‘an offer to pay a specified amount of money in respect of the first complete calendar year falling within the period for which the licence is in force (being an amount which, as increased by the appropriate percentage, is also to be payable in respect of subsequent years)'. If the application succeeds, payment of the `cash bid' is made under Section 19 (1)(a) and (b) of BA90. There are similar provisions for national radio licences at Sections 98(7) and 102(1)(a) and (b).

Cash bid payments are deductible revenue expenses in computing trading profits. Although the licence to broadcast is a fixed capital asset in the broadcaster's hands, the authorities show that the right to use a capital asset may be secured either for a capital sum, paid in one `lump' or by instalments, or, if there is no identifiable capital sum, by a series of revenue payments. For example, a lease of land will either involve the payment of a premium (capital) or rents (revenue) or both. In the case of a `cash bid', we consider that the payment of index-linked periodical amounts is akin to the payment of rent under a lease. The payments are therefore rentals of a revenue nature and are not annual payments under Case III in the hands of the recipient.