References on this page to ‘Section 42’ should be read as including both F2A92/S42 and ITTOIA/S138 and S138A, and ‘Section 48’ should be read as including both F2A97/S48 and ITTOIA/S139 and S140. ‘Claims’ to relief should be read as including allocations of expenditure under ITTOIA/S138 to 140 (see BIM56318), and references to claims under Section 42 include claims under that section as amended by Section 48.
Film tax relief under Section 42 and Section 48 is normally
accessed by third party financiers (partnerships of wealthy
individuals or large groups of companies – usually banks)
using tax deferral schemes (see
BIM56400 onwards). In these schemes the
financier incurs expenditure on the production or acquisition of
the master version of a film and then leases or licences the film
back to the film producer or a film distributor. In effect, the
film producer obtains a cash benefit by ‘selling’ the
tax deduction to a third party with income to shelter.
In the normal course of events, there would appear to be
little point in a producer or acquirer claiming relief if his
intention was to then sell the master version as he would be
entitled to a full deduction under F2A92/S40B to set against the
sale proceeds, and would not need the benefit of the accelerated
relief (see
BIM56243).
However, several tax avoidance schemes were devised which
aimed to defer the sale proceeds or shelter them offshore in order
that the reliefs might be obtained more than once on a film without
a matching receipt. The first such scheme, involving multiple
acquisitions, was discovered in the spring of 2002, and was quickly
countered by FA02/S101. This measure was introduced late in the
Finance Bill process, so was narrowly focussed on the particular
scheme, and applied only to relief under Section 48 (see
BIM56530).
Several new schemes came to light late in 2004 affecting both
relief under Section 42 and Section 48. These schemes had become
very widespread with most films produced in 2003 and 2004 using
some form of double (or multiple) dipping arrangements. It is
doubtful whether these schemes worked technically under the then
existing legislation. However, given the prevalence of the schemes,
the Government decided to put the matter beyond doubt in FA05.
Counter measures were introduced with effect from 2 December 2004
to ensure that the reliefs could not be obtained more than once on
any film on or after that date, but subject to transitional rules
directed primarily at films which were in production then (see
BIM56365).
Any films where you think double dipping may have taken place
and which are not caught by the new rules, including films where it
is claimed the transitional provisions apply, should be referred to
Anti-Avoidance Group (Films).
Although the legislation to counter double dipping is complex, the complexity arises primarily from the need to cover all possible scenarios in the transitional provisions. The basic rules are very simple.
The effect of these provisions is that if relief is claimed under Section 42 for production expenditure, there can be no claim for acquisition expenditure on the same film. If the first claim is for acquisition expenditure there can be no claim for production expenditure or for expenditure on any other acquisition of the film.
If, exceptionally, two or more claims under Section 42 are
received simultaneously HMRC can decide which claim is to have
priority. Any such cases should be referred to CT&VAT
(Technical).
The first come first served rule is to be applied strictly,
but should not cause problems in practice as the film producer will
normally decide whether it wishes to claim the relief itself or
whether an acquirer will claim the relief (e.g., through a sale and
lease back). Similarly, it is likely that any acquirer wishing to
claim the relief will also obtain assurances from the seller that
no-one else has claimed or will claim relief on the film.
It is incumbent on the person claiming the relief to ensure
that no other previous or subsequent owner of the film has done so.
Where a claim is made and you are uncertain whether any previous or
subsequent owners of the film have already done so, you should make
necessary enquiries to confirm the position.
These changes supersede the rule preventing Section 48 relief
for multiple acquisitions (
BIM56530), so FA02/S101 is repealed for
claims to relief on or after 2 December 2004 except for claims
subject to the transitional rules.
Examples showing application of the new rules are at
BIM56375.
