BIM56022 - Film and audio products: introduction: where to find the legislation for IT

For years of assessment 2005/06 onwards, Chapter 9, Part 1 of ITTOIA contains the IT legislation governing the various reliefs for expenditure on the production or acquisition of the original master version of a film in a trade carried on by an individual or a partnership which includes individuals. Chapter 3, Part 5 of ITTOIA extends these provisions to non-trade businesses. For the equivalent legislation applying to earlier years of assessment, see BIM56020. FA04 and FA05 also contains specific anti-avoidance legislation relating to films and partnerships.

ITTOIA

Section 130 explains that Chapter 9 applies to production, acquisition and preliminary expenditure, and defines these terms.

Sections 131 to 133 provide definitions of film, original master version, certified master version, and relevant period.

Section 134 deems the expenditure on the original master version of a film to be revenue in nature and treats associated receipts as income for tax purposes, BIM56205.

Section 135 determines how expenditure, not relieved under the special rules for qualifying films, is to be brought into account for tax purposes, BIM56210.

Section 136 sets general rules for the deduction of expenditure relating to qualifying films.

Section 137 provides relief for preliminary expenditure on qualifying films, or films that would be reasonably likely to be qualifying films if made, BIM56320.

Sections 138 and 138A provide for the deduction of expenditure on the production or acquisition of qualifying films over a minimum of three years ( BIM56325). FA05 inserted rules, effective from 2 December 2004, which prevent relief being claimed more than once on any film (double dipping - BIM56360), and which restrict the total relief to the immediate cost of production of the film, BIM56340.

Sections 139 and 140 provide for the deduction of expenditure on the production or acquisition of qualifying films costing £15million or less, allowing up to 100% of the expenditure to be deducted in a relevant period ( BIM56380). It contains a rule preventing deductions for multiple acquisitions of the same film ( BIM56530) which was repealed by FA05 and replaced by rules, effective from 2 December 2004, which prevent relief being claimed more than once on any film (double dipping - BIM56360).

Section 140A was inserted by FA05 and defines disqualifying deduction for the purposes of sections 138 to 140 in order to prevent double dipping, BIM56360.

Section 141 defines total production expenditure for the purposes of sections 138 to 140, see BIM56340 and BIM56375.

Section 142 defines when expenditure is incurred for the purposes of sections 138 to 140, see BIM56340 and BIM56385.

Sections 142A to 142E claw back part of the relief given under Sections 138 to 140 where the film reliefs are used in a scheme to defer tax for more than 15 years, BIM56700.

Section 143 allows a person that incurs expenditure on a qualifying film to elect for capital allowance treatment, BIM56310.

Section 144 defines what is meant by a film genuinely intended for theatrical release, BIM56110.

FA04

Sections 119 to 123 (the ‘exit charge’) apply to individuals who have benefited from film tax relief by obtaining trading loss relief against their other income and gains. It raises a charge to tax under Case VI Schedule D to stop those individuals from obtaining net loss relief in excess of their actual economic loss, BIM56600.

Section 125 stops individual ‘non-active’ partners from claiming sideways loss relief where the partnership trade is the exploitation of film but the specific reliefs for qualifying films are not applied, and there is a guaranteed income stream. In effect this prevents tax deferral schemes other than those which exploit the reliefs for qualifying British films, BIM56565.

Section 124 and Sections 126 to 130 are anti-avoidance measures which apply to non-active partners in all trading partnerships, not just those exploiting films. However, most of the avoidance schemes caught by this measure were film partnerships. Section 124 restricts sideways loss relief to the partner’s capital contributed to the trade. Sections 126 to 130 raise a charge to tax where sideways loss relief is generated by incurring costs on exploiting a licence and there is a disposal of income rights from that licence for consideration not chargeable to IT, BIM56535 and BIM56555.

FA05

Section 58 extended relief under sections 139 and 140 for films starting principal photography before 6 April 2006, BIM56380.

Sections 73 to 79 exclude ‘risk free’ capital contributions to partnerships by individuals when computing the film exit charge or sideways loss relief (the latter is not film specific), BIM56545 and BIM56635.