BIM56230 - Film and audio products: methods applying to all master versions: cost recovery method

The cost recovery method is one of the two methods applying to all master versions which are permitted for writing-off revenue expenditure incurred on the production or acquisition of the master version of films or audio products. There are other methods available for qualifying British films (see BIM56300 onwards).

The statutory provisions require the income matching method ( BIM56215) to be applied first. An additional deduction is then made for the amount by which the income from exploitation of the master version in the accounting period exceeds the amount of expenditure deductible under that method. The amount deducted cannot exceed the outstanding unrelieved expenditure.

In practice, the rules simply permit a deduction equal to the income received until such time as the expenditure has been fully relieved. A calculation under the income matching method is not required.

For CT in all years, and IT years of assessment up to and including 2004/05 (i.e., before ITTOIA), a specific claim is required to apply the cost recovery method. A separate claim is required for each relevant period ( BIM56210) where the method is to apply. The time limit for making such claims depends on whether or not the claimant is within the charge to IT or CT.

For IT cases, the claim must be made on or before the first anniversary of the 31 January next following the year of assessment in which the relevant period ends.

For CT cases, the claim must be made not later than two years after the end of the relevant period to which the claim relates.

The statute does not specify the form of the claim. Provided it is clear from the computations that the cost recovery method is being used, an informal claim on the face of the computations will be acceptable.

For IT years of assessment 2005/06 onwards, ITTOIA/S135 has dispensed with the need to make a claim to use the cost recovery method. Instead, the person carrying on the trade may allocate to a relevant period the further unrelieved expenditure required to give effect to the cost recovery method. The allocation is made in a return, and whilst no claim is required, it needs to be clear from the face of the computations that the cost recovery method is being applied. This is essential as there are specific additional restrictions which apply to expenditure allocated under other statutory provisions – particularly for qualifying British films (see BIM56300 onwards).