BIM56345 - Film and audio products: deductions for qualifying films: write-off over three years: restrictions on relief on or after 2 December 2004: acquisition expenditure

On this page references to ‘Section 42’ should be read as including both F2A92/S42 and ITTOIA/S138A, and ‘Section 48’ should be read as including both F2A97/S48 and ITTOIA/S140.

Until 2 December 2004, the total amount of relief that could be obtained for expenditure on the acquisition of a film was different under Section 42 and Section 48. Section 48 restricted the amount of relief to the total production expenditure incurred on the film ( BIM56380). If a film was acquired at a price greater than that, relief could be given under Section 42 on the balance (see BIM56335). FA05/S59 and Schedule 3 removed this difference subject to transitional rules ( BIM56350), the most important of which is that this does not affect any film which had started principal photography before 2 December 2004.

For films and expenditure not protected by the transitional rules there are two changes to Section 42 which affect relief for acquisition expenditure incurred on or after 2 December 2004.

1. Restriction on amount of relief

The total relief available under Section 42 is limited to the total production expenditure ( BIM56340) incurred on making the film. Any acquisition expenditure above this amount can only be relieved under the default rules applying to all master versions in F2A92/S40B (see BIM56215 and BIM56230) and then only in a relevant period ( BIM56210) in which there is no deduction under Section 42.

2. When expenditure is incurred

The rules in CAA01/S5 are imported to determine when expenditure is incurred (see BIM56385). Before this, ‘incurred’ was not defined in Section 42 and took its ordinary meaning. In practice this amendment is unlikely to have any significant effect on most films as the ordinary meaning of when expenditure is incurred will rarely differ from the statutory definition.

The overall effect of these changes is that, for a film whose total production expenditure is £15m or less, relief for acquisition expenditure can only be obtained under Section 48 or F2A92/S40B. Relief under Section 42 can only apply to films with total production expenditure in excess of £15m.

See BIM56355 for examples.