BIM56318 - Film and audio products: deductions for qualifying films: allocating expenditure under ITTOIA

For IT years of assessment 2005/06 onwards, the rules for deduction of expenditure on the production or acquisition of the original master version of a film are in Chapter 9 of ITTOIA at Sections 130 to 144.

These rules are mainly a consolidation of the previous legislation, which still applies to companies. However, one significant change is that ITTOIA does not require a claim where a person (including a partnership) wishes to deduct expenditure under the special rules for qualifying British films ( BIM56320, BIM56325and BIM56380) or under the cost recovery method ( BIM56230). An election is still required for capital allowance treatment ( BIM56310).

Rather than requiring a person to make a claim the relevant sections in ITTOIA allow a person to allocate and deduct expenditure up to a specified amount in a relevant period, provided the conditions specified in each section are met. This allocation must be made in the tax return which covers or includes the relevant period. The amount deductible will depend on which relief is being used.

It is necessary to clearly identify under which section of the Act expenditure is being allocated in any relevant period. This is particularly important for qualifying films where relief is sought under ITTOIA/S138 to S140 because these sections are subject to anti-avoidance rules to prevent these reliefs being given more than once for any film (see BIM56360). Therefore, not only will the section under which the allocation is made affect the amount that the person himself can deduct in that or another relevant period, but it may also affect the amount that another person, who also incurs expenditure on the film, may deduct in any relevant period.

Where a deduction is made in a return for expenditure incurred on the production or acquisition of a qualifying film in a relevant period, and the return does not make it explicitly clear under which section of the Act the deduction is being made, you should ask the taxpayer to provide this information in writing, or, if necessary, open an enquiry into the return.

As with claims under F2A92/S41 and F2A92/S42 (see BIM56317), there are a number of similar pre-requisites before a deduction is allowed in a relevant period under ITTOIA/S137 to S140. In particular, the return should:

• identify the film;
• be accompanied by a copy of the certificate giving qualifying film status, or if the deduction is under ITTOIA/S137 and the film is not complete, be accompanied by sufficient evidence that the film would be a qualifying film were it completed (BIM56320).

Unless a film has been certified as a qualifying film, the normal rules specified in ITTOIA/S135 for deducting expenditure must be applied ( BIM56215). It is not necessary for the film to be certified in the relevant period in which the deduction is sought, but it must be certified before expenditure can be allocated under ITTOIA/S138 to S140, i.e., it before the return is made.