BIM56375 - Film and audio products: deductions for qualifying films: restrictions on relief on or after 2 December 2004: double dipping: examples

The examples on this page illustrate how the double dipping anti-avoidance rules in FA05/SCH3 work (see BIM56360, BIM56365 and BIM56370). Double dipping cases not caught by these rules may still be challengeable under the legislation existing before 2 December 2004, so even though claims are not precluded by the new rules it does not mean that relief will be due to either or both claimants. Cases where you suspect a double-dip has been attempted should be referred to Anti-Avoidance Group (Films).

On this page ‘claims’ to relief refer to claims under F2A92/S42, which includes relief under that section as amended by F2A97/S48, and should also be read as including allocations of expenditure under ITTOIA/S138 to S140 where appropriate (see BIM56318).

In the following examples each film is a qualifying British film. Where relief is prevented by the double dipping rules, relief for expenditure incurred on the master version of the film can still be obtained under the income matching or cost recovery rules in F2A92/S40B ( BIM56215 and BIM56230) providing the master version is not held as trading stock ( BIM56255).

Example 1. Partnership A incurs expenditure on the production of a film which is completed on 30 September 2004. Partnership B later acquires the film on 30 November 2004. Both partnerships claim Section 48 relief on 30 April 2005.

Although the film was not in production on 2 December 2004, both partnerships had an unconditional obligation to incur expenditure before that date and had actually done so. The new rules do not prevent either claim.

Example 2. Company C incurs expenditure on the production of a film which is completed on 30 September 2004. Company D later acquires the film on 31 December 2004. D did not have a pre-existing unconditional obligation to buy the film at 2 December 2004.

If C claims relief first (whether or not it does so before 2 December 2004) then D cannot claim relief.

If C delays its claim, and D claims relief first, then C cannot claim relief.

Example 3. A company E spends £90m on making a film. Principal photography starts on 1 March 2005, and the film is completed on 30 June 2005. Another company F buys the film from E on 1 December 2005 for £90m. Neither E nor F had a pre-existing obligation to incur expenditure before 2 December 2004. Both E and F have been carrying on trades of exploitation of films for a number of years with an accounting date of 31 December.

On 31 March 2006 E claims maximum relief of £30m for the year ended 31 December 2005 (see BIM56330). On 30 April 2006 F also claims relief for £30m for the year ended 31 December 2005, but this claim is prohibited by the double dipping rules as E made a previous claim.

E is not prohibited from claiming relief for the remaining £60m of its expenditure in each of the succeeding years as F’s claim was invalid and E’s later claims relate to the same total expenditure as its first claim.

Example 4. Company G incurs expenditure on the production of a film which starts principal photography on 30 November 2004 and is completed on 31 January 2005. Partnership H acquires the film on 31 January 2005 and subsequently another partnership I acquires the film on 28 February 2005.

The film was in production on 2 December 2004. G is not prevented from claiming relief by the new rules.

As the film was in production at 2 December 2004 the transitional rules preventing relief for successive acquisitions apply (BIM56370), so either H or I may be able to claim relief, but not both. If H claims relief first, I cannot claim relief. If I claims relief first, H cannot claim relief.

Example 5. Partnership J incurs expenditure on the production of a film which starts principal photography on 1 July 2005, and is completed on 30 September 2005. J then disposes of the master version and subsequently reacquires the film on 1 January 2006. J did not have a pre- existing obligation to incur expenditure at 2 December 2004.

The film was not in production at 2 December 2004, and there was no pre-existing obligation at that date. J may be able to claim relief for either its production expenditure or its acquisition expenditure, but cannot claim relief for both. If J makes a simultaneous claim for both, HMRC can decide which is to be treated as having been made first: the case should be submitted to CT&VAT (Technical).

Example 6. Partnership L incurs £10m of expenditure on the production of a film, completed on 30 September 2004. At 2 December 2004 partnership M had a pre-existing obligation to incur £10m of expenditure on the acquisition of the film. M buys the film for £15m on 1 January 2005.

The film was not in production at 2 December 2004. As L had already spent money on the production of the film, it had a pre-existing obligation at 2 December. However, as M spent more than its pre-existing obligation on buying the film, any claim that M makes is not deemed to be in respect of a pre-existing obligation.

If L claims relief first, then M will not be able to claim relief. If M claims relief first, them L will not be able to claim relief. Had M spent only £10m on the acquisition, neither claim would have been prohibited under the transitional rules.