Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 9 — Trade profits: films and sound recordings
65

(6)
If any production expenditure in respect of the original master version is
allocated to the relevant period—
(a)
under section 135 above, or
(b)
under section 40B of F(No.2)A 1992,

no other production expenditure in respect of the original master version may
5
be allocated to the relevant period under this section.
140
Certified master versions: acquisition expenditure on limited-budget films
(1)
This section applies if—
(a)
the person carrying on the trade has incurred acquisition expenditure
in respect of the original master version of a film in, or before, the
10
relevant period,
(b)
the acquisition was a relevant acquisition (see subsection (2)),
(c)
the expenditure was incurred before 2nd July 2005 (see section 142 for
timing rule),
(d)
the original master version is a certified master version,
15
(e)
the film is genuinely intended for theatrical release, and
(f)
the total production expenditure in respect of the original master
version is £15 million or less (see section 141).
(2)
An acquisition is a relevant acquisition if—
(a)
the acquisition is by the producer and the producer has not previously
20
acquired the original master version of the film, or
(b)
the acquisition is directly from the producer and the original master
version of the film has not previously been acquired directly from the
producer,

and for this purpose “the producer” means the person who commissions the
25
making of the film and is entitled to control its exploitation.
(3)
A deduction is allowed for the amount of the acquisition expenditure allocated
to the relevant period, but this is subject to the application of any prohibitive
rule.
(4)
The person carrying on the trade may allocate up to 100% of the acquisition
30
expenditure to the relevant period.
(5)
But the total amount allocated under this section may not exceed the total
production expenditure in respect of the original master version.
(6)
Expenditure may not be allocated to the relevant period under this section if it
is allocated—
35
(a)
under this section to any other relevant period,
(b)
under any other provision of this Chapter to the relevant period or any
other relevant period,
(c)
under section 42 of F(No.2)A 1992 as applied by section 48(1) to (3) of
F(No.2)A 1997 to any other relevant period, or
40
(d)
under section 40B or 41 of F(No.2)A 1992, or section 42 of that Act (but
not as applied by section 48(1) to (3) of F(No.2)A 1997), to the relevant
period or any other relevant period.
(7)
If any acquisition expenditure in respect of the original master version is
allocated to the relevant period—
45
(a)
under section 135 above, or

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 9 — Trade profits: films and sound recordings
66

(b)
under section 40B of F(No.2)A 1992,

no other acquisition expenditure in respect of the original master version may
be allocated to the relevant period under this section.
141
“Total production expenditure in respect of the original master version”
(1)
The following provisions of this section define what is meant by “the total
5
production expenditure in respect of the original master version” for the
purposes of sections 139 and 140.
(2)
“The total production expenditure in respect of the original master version”
means the total of all the production expenditure in respect of the original
master version—
10
(a)
whenever the expenditure is incurred, and
(b)
whether or not it is incurred by the person carrying on the trade.
(3)
Any expenditure which—
(a)
has not been paid at the time the film is completed, and
(b)
is not, at that time, the subject of an unconditional obligation to pay
15
within 4 months after the date of completion,

is ignored.
(4)
Any part of the production expenditure in respect of the original master
version which—
(a)
is incurred by a person under or as a result of a transaction entered into
20
directly or indirectly between that person and a connected person, and
(b)
might have been expected to have been of a greater amount (“the arm’s
length amount”) if the transaction had been between independent
persons dealing at arm’s length,

is treated as having been of an amount equal to the arm’s length amount.
25
142
When expenditure is incurred
(1)
This section applies to determine when expenditure is treated as incurred for
the purposes of sections 139 and 140.
(2)
The general rule is that an amount of expenditure is treated as incurred as soon
as there is an unconditional obligation to pay it.
30
(3)
The general rule applies even if the whole or a part of the expenditure is not
required to be paid until a later date.
(4)
There are the following exceptions to the general rule.
(5)
If under an agreement—
(a)
the expenditure is on the provision of an original master version,
35
(b)
an unconditional obligation to pay an amount of the expenditure comes
into being as a result of the giving of a certificate or any other event,
(c)
the giving of the certificate, or other event, occurs within the period of
one month after the end of a relevant period, and
(d)
at or before the end of the relevant period, the original master version
40
has become the property of, or is otherwise under the agreement
attributed to, the person subject to the unconditional obligation to pay,

the expenditure is treated as incurred immediately before the end of the
relevant period.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 9 — Trade profits: films and sound recordings
67

(6)
If under an agreement an amount of expenditure is not required to be paid
until a date more than 4 months after the unconditional obligation to pay has
come into being, the amount is treated as incurred on that date.
(7)
If under an agreement—
(a)
there is an unconditional obligation to pay an amount of expenditure
5
on a date earlier than accords with normal commercial usage, and
(b)
the sole or main benefit which might (as a result) have been expected to
be obtained is that the amount would be treated, under the general rule,
as incurred at an earlier time,

the amount is treated as incurred on the date on or before which it is required
10
to be paid.
Election for sections 134 to 140 not to apply
143
Election for sections 134 to 140 not to apply
(1)
A person carrying on a trade which consists of or includes the exploitation of
original master versions of films may elect for sections 134 to 140 not to apply
15
in relation to expenditure if—
(a)
the person incurs expenditure on the production or acquisition of an
original master version of a film,
(b)
the original master version is a certified master version,
(c)
its value is expected to be realisable over a period of not less than two
20
years, and
(d)
the film is genuinely intended for theatrical release.
(2)
The election must relate to all expenditure—
(a)
incurred, or
(b)
to be incurred,
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on the production or acquisition of the original master version in question.
(3)
The election is irrevocable.
(4)
The election must be made on or before the first anniversary of the normal self-
assessment filing date for the tax year in which ends the relevant period in
which the original master version of the film is completed.
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(5)
For this purpose a film is completed—
(a)
at the time given by section 131(5), or
(b)
if the expenditure is acquisition expenditure and the acquisition takes
place after that time, at the time of the acquisition.
(6)
No election may be made in relation to expenditure on the production or
35
acquisition of an original master version of a film if any of that expenditure has
been allocated—
(a)
under any of sections 137 to 140 above, or
(b)
under section 41 or 42 of F(No.2)A 1992.

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 10 — Trade profits: certain telecommunication rights
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Supplementary
144
Meaning of “genuinely intended for theatrical release”
(1)
This section determines for the purposes of this Chapter whether films are
genuinely intended for theatrical release.
(2)
The relevant intention is the intention at the time the film is completed of the
5
person then entitled to determine how the film is to be exploited.
(3)
“Theatrical release” means exhibition to the paying public at the commercial
cinema.
(4)
A film is not regarded as genuinely intended for theatrical release unless it is
intended that a significant proportion of the earnings from the film should be
10
obtained by exhibition to the paying public at the commercial cinema.
Chapter 10
Trade profits: certain telecommunication rights
145
Professions and vocations
The provisions of this Chapter apply to professions and vocations as they
15
apply to trades.
146
Meaning of “relevant telecommunication right”
In this Chapter a “relevant telecommunication right” means—
(a)
a licence granted under section 1 of the Wireless Telegraphy Act 1949
(c. 54) in accordance with regulations made under section 3 of the
20
Wireless Telegraphy Act 1998 (c. 6) (bidding for licences),
(b)
an indefeasible right to use a telecommunications cable system, or
(c)
a right derived (directly or indirectly) from such a licence or
indefeasible right.
147
Expenditure and receipts treated as revenue in nature
25
(1)
This section applies if, in accordance with generally accepted accounting
practice, an amount in respect of—
(a)
expenditure on the acquisition of a relevant telecommunication right,
or
(b)
a receipt from the disposal of a relevant telecommunication right,
30

is recognised in the accounts of a trade as an item in the calculation of profit or
loss.
(2)
The amount is treated for income tax purposes as an item of a revenue nature.
(3)
“The acquisition of a relevant telecommunication right” includes—
(a)
the extension of rights attached to a relevant telecommunication right,
35
and
(b)
if a relevant telecommunication right is subject to a derivative right, the
cancellation or restriction of rights attached to the derivative right.
(4)
“The disposal of a relevant telecommunication right” includes—

Income Tax (Trading and Other Income) Bill
Part 2 — Trading income
Chapter 11 — Trade profits: other specific trades
69

(a)
the cancellation or restriction of rights attached to a relevant
telecommunication right, and
(b)
the granting of a derivative right or the extension of rights attached to
a derivative right.
148
Credits or debits arising from revaluation
5
(1)
This section applies if, in accordance with generally accepted accounting
practice, an amount in respect of the revaluation of a relevant
telecommunication right is recognised in the accounts of a trade (whether or
not as an item in the calculation of profit or loss).
(2)
The amount is treated for income tax purposes as an item of a revenue nature.
10
(3)
In calculating the profits of the trade, the amount is brought into account for
the period of account in which it is recognised.
Chapter 11
Trade profits: other specific trades
Dealers in securities etc.
15
149
Taxation of amounts taken to reserves
(1)
This section applies for the purpose of calculating the profits of a person’s
trade if a profit on the sale of securities would be brought into account in
calculating the profits of the trade.
(2)
Profits and losses from the securities that in accordance with generally
20
accepted accounting practice are—
(a)
calculated by reference to the fair value of the securities, and
(b)
recognised in the person’s statement of recognised gains and losses or
statement of changes in equity,

are brought into account in calculating the profits of the trade.
25
(3)
But subsection (2) does not apply—
(a)
to an amount so far as deriving from or otherwise relating to an amount
brought into account under that subsection in an earlier period of
account, or
(b)
to an amount recognised for accounting purposes by way of correction
30
of a fundamental error.
(4)
In this section “securities” includes—
(a)
shares,
(b)
rights of unit holders in unit trust schemes to which TCGA 1992 applies
as a result of section 99 of TCGA 1992, and
35
(c)
in the case of a company with no share capital, interests in the company
possessed by members of the company,

but does not include a loan relationship (within the meaning of Chapter 2 of
Part 4 of FA 1996).