Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 1 — Restrictions on circumstances in which relief may be obtained
91

Meaning of “disqualifying deduction”
6     (1)
After section 140 of ITTOIA 2005 insert—
“Interpretation of sections 138 to 140
140A
“Disqualifying deduction”
(1)
For the purposes of sections 138 and 139 a disqualifying deduction in
5
respect of expenditure relating to the film occurs when—
(a)
under sections 138, 138A or 140 a deduction is made in
respect of acquisition expenditure in respect of the original
master version of the film in calculating the profits of the
trade of any relevant period,
10
(b)
a claim under section 42 of F(No.2)A 1992 is made in relation
to the trade, for any relevant period, in respect of expenditure
incurred on the acquisition of that version,
(c)
under any of sections 138 to 140 a deduction is made in
respect of production or acquisition expenditure in respect of
15
that version in calculating the profits of another trade or
business of any relevant period, or
(d)
a claim under section 42 of F(No.2)A 1992 is made in relation
to another trade or business, for any relevant period, in
respect of expenditure incurred on the production or
20
acquisition of that version.
(2)
For the purposes of sections 138A and 140 a disqualifying deduction
in respect of expenditure relating to the film occurs when—
(a)
under section 138 or 139 a deduction is made in respect of
production expenditure in respect of the original master
25
version of the film in calculating the profits of the trade of any
relevant period,
(b)
a claim under section 42 of F(No.2)A 1992 is made in relation
to the trade, for any relevant period, in respect of expenditure
incurred on the production of that version,
30
(c)
under any of sections 138 to 140 a deduction is made in
respect of production or acquisition expenditure in respect of
that version in calculating the profits of another trade or
business of any relevant period, or
(d)
a claim under section 42 of F(No.2)A 1992 is made in relation
35
to another trade or business, for any relevant period, in
respect of expenditure incurred on the production or
acquisition of that version.
(3)
For the purposes of subsections (1) and (2)—
(a)
it does not matter whether a claim under section 42 of
40
F(No.2)A 1992 was made before, or on or after, 2nd December
2004, and
(b)
references to a relevant period in relation to such a claim are
to a relevant period within the meaning of section 40B of that
Act.
45
(4)
Where more than one deduction is made at the same time, the Inland
Revenue may determine which of those deductions is to be regarded
as made first for the purposes of determining, for the purposes of

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 1 — Restrictions on circumstances in which relief may be obtained
92

sections 138 to 140, whether a disqualifying deduction has already
been made.
(5)
In subsection (4) references to a deduction are to be read as including
references to a claim under section 42 of F(No.2)A 1992.”
      (2)
Subject to sub-paragraphs (3) and (4), the amendment made by this
5
paragraph has effect for the year 2005-06 and subsequent years of
assessment.
      (3)
When determining whether a deduction under any of sections 138 to 140 of
ITTOIA 2005 in respect of pre-announcement expenditure only is allowed,
any other deduction under any of those sections, or previous claim under
10
section 42 of F(No.2)A 1992, in respect of pre-announcement expenditure
only is to be ignored for the purposes of determining whether there has
already been a disqualifying deduction.
      (4)
In sub-paragraph (3) “disqualifying deduction” is to be construed in
accordance with section 140A of ITTOIA 2005.
15
Transitional provision for films in production
7     (1)
This paragraph applies in relation to any claim for relief under section 42 of
F(No.2)A 1992 (other than any claim for relief under that section as modified
by section 48 of F(No.2)A 1997) which is in respect of expenditure incurred
on the acquisition of the original master version of a film which was in
20
production on 2nd December 2004.
      (2)
No relief is available under section 42 of F(No.2)A 1992 in respect of that
expenditure if—
(a)
the acquisition is not the first acquisition by the claimant of the
original master version of the film, or
25
(b)
a claim has already been made under that section, or a deduction has
already been made under section 138, 138A or 140 of ITTOIA 2005, in
respect of expenditure incurred on another acquisition of that
version.
      (3)
Where, in relation to any particular film, more than one claim under section
30
42 of F(No.2)A 1992 is made at the same time, the Inland Revenue may
determine which of the claims is to be regarded as made first for the
purposes of this paragraph.

In this sub-paragraph references to a claim under section 42 of F(No.2)A
1992 are to be read as including references to a deduction of the kind
35
mentioned in sub-paragraph (2)(b).
      (4)
For the purposes of this paragraph “the Inland Revenue” means any officer
of the Board.
      (5)
This paragraph is deemed to have come into force on 2nd December 2004.
8     (1)
This paragraph applies in relation to relief under section 138 of ITTOIA 2005
40
in respect of any expenditure incurred on the acquisition of the original
master version of a film which was in production on 2nd December 2004.
      (2)
No deduction is allowed under that section in respect of expenditure
incurred by a person on the acquisition of that version if—
(a)
the acquisition is not the first acquisition by that person of the
45
original master version of the film, or

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 2 — Restrictions on amount of relief which may be obtained
93

(b)
a deduction has already been made under section 138, 138A or 140 of
ITTOIA 2005, or a claim has already been made under section 42 of
F(No.2)A 1992, in respect of expenditure incurred on another
acquisition of that version.
      (3)
Where, in relation to any particular film, more than one deduction of the
5
kind mentioned in sub-paragraph (2)(b) is made at the same time, the Inland
Revenue may determine which of the deductions is to be regarded as made
first for the purposes of this paragraph.

In this sub-paragraph references to a deduction of the kind mentioned in
sub-paragraph (2)(b) are to be read as including references to a claim under
10
section 42 of F(No.2)A 1992.
      (4)
For the purposes of this paragraph “the Inland Revenue” means any officer
of the Board.
      (5)
This paragraph has effect for the year 2005-06 and subsequent years of
assessment.
15
Part 2
Restrictions on amount of relief which may be obtained
Section 42 of the Finance (No.2) Act 1992 (c. 48)
9     (1)
Section 42 of F(No.2)A 1992 (relief for production or acquisition
expenditure) is amended as follows.
20
      (2)
After subsection (3) (and before subsection (3A) inserted by paragraph 1(4)
of this Schedule) insert—
“(3ZA)
Subsection (3) does not apply to so much of that expenditure as
exceeds the total production expenditure in respect of the film
concerned.
25
(3ZB)
For the purposes of this section the “total production expenditure” in
respect of a film means the total of all the expenditure incurred on the
production of the original master version of the film.”
      (3)
After subsection (5A) (inserted by paragraph 1(5) of this Schedule) insert—
“(5B)
Where the claimant’s acquisition expenditure exceeds the total
30
production expenditure in respect of the film, paragraph (b) of
subsection (5A) has effect as if the claimant’s acquisition expenditure
were an amount equal to that total production expenditure.”
      (4)
After subsection (8) insert—
“(8A)
For the purposes of this section the expenditure incurred on the
35
production of the original master version of a film does not include
any amount that at the time the film is completed—
(a)
has not been paid, and
(b)
is not the subject of an unconditional obligation to pay within
4 months after the date of completion.
40
(8B)
Subsections (1) to (5) of section 5 of the Capital Allowances Act 2001
(when capital expenditure is incurred) apply for determining when
for the purposes of this section any expenditure is incurred as they

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 2 — Restrictions on amount of relief which may be obtained
94

apply for determining when for the purposes of that Act any capital
expenditure is incurred, but as if, in subsection (6) of that section, “at
an earlier time” were substituted for “in an earlier chargeable
period”.”
      (5)
Subject to sub-paragraphs (6) to (9), the amendments made by this
5
paragraph are deemed to have come into force on 2nd December 2004.
      (6)
Those amendments do not have effect in relation to any claim for relief
which is in respect of expenditure which relates to a film which had its first
day of principal photography before that date.
      (7)
Where, in relation to a film—
10
(a)
disregarding subsection (3ZA) of section 42 of F(No.2)A 1992, a
claimant under that section has incurred pre-announcement
expenditure to which subsection (3) of that section applies, and
(b)
the total amount of that pre-announcement expenditure exceeds the
total production expenditure in respect of the film (within the
15
meaning of subsection (3ZB) of that section),

the references in subsections (3ZA) and (5B) of that section to the total
production expenditure in respect of the film are to be read as references to
the total amount of that pre-announcement expenditure.
      (8)
Subject to sub-paragraph (9), the amendment made by sub-paragraph (4)
20
does not have effect in relation to pre-announcement expenditure.
      (9)
For the purposes of section 42(3ZB) of F(No.2)A 1992 (definition of “total
production expenditure” in respect of a film) the amendment made by sub-
paragraph (4) also has effect in relation to expenditure incurred on the
production of an original master version which is pre-announcement
25
expenditure.
     (10)
In this paragraph “claim for relief” means a claim for relief under section 42
of F(No.2)A 1992 (including a claim for relief under that section as modified
by section 48 of F(No.2)A 1997).
Section 48 of the Finance (No.2) Act 1997 (c. 58)
30
10    (1)
In section 48 of F(No.2)A 1997 (which modifies section 42 of F(No.2)A 1992
as it applies in relation to certain expenditure)—
(a)
in subsection (2), for “Subject to subsection (3) below, this” substitute
“This”,
(b)
omit subsection (3), and
35
(c)
omit subsections (4) and (5).
      (2)
Subject to sub-paragraphs (3) and (4), the amendments made by this
paragraph are deemed to have come into force on 2nd December 2004.
      (3)
The amendments made by this paragraph do not have effect in relation to
any claim for relief which is in respect of expenditure which relates to a film
40
which had its first day of principal photography before that date.
      (4)
Those amendments also do not have effect in relation to any claim for relief
which is in respect of pre-announcement expenditure only or expenditure
which includes pre-announcement expenditure.

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 2 — Restrictions on amount of relief which may be obtained
95

      (5)
In this paragraph “claim for relief” means a claim for relief under section 42
of F(No.2)A 1992 as modified by section 48 of F(No.2)A 1997.
Section 138 of the Income Tax (Trading and Other Income) Act 2005
11    (1)
Section 138 of ITTOIA 2005 (certified master versions: production
expenditure) (as substituted by paragraph 3 of this Schedule) is amended as
5
follows.
      (2)
In subsection (1), after paragraph (a) insert—
“(aa)
section 139 does not apply in relation to that film,”.
      (3)
After subsection (1) insert—
“(1A)
Any expenditure which—
10
(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 within 4 months after the date of completion,

is not regarded as production expenditure for the purposes of this
section.”
15
      (4)
In subsection (5), in Calculation 2—
(a)
at the end of paragraph (a) insert “and”, and
(b)
omit paragraph (c) and the word “and” immediately before it.
      (5)
Subject to sub-paragraphs (6) to (8), the amendments made by this
paragraph have effect for the year 2005-06 and subsequent years of
20
assessment.
      (6)
Those amendments do not have effect in relation to expenditure relating to
films which had their first day of principal photography before 2nd
December 2004.
      (7)
The amendments made by sub-paragraphs (2) and (4) do not have effect in
25
relation to cases to which section 138 of ITTOIA 2005 applies in which any
of the expenditure within subsection (1)(a) of that section is pre-
announcement expenditure.
      (8)
The amendment made by sub-paragraph (3) does not have effect in relation
to pre-announcement expenditure.
30
Section 138A of the Income Tax (Trading and Other Income) Act 2005
12    (1)
Section 138A of ITTOIA 2005 (certified master versions: acquisition
expenditure) (as substituted by paragraph 3 of this Schedule) is amended as
follows.
      (2)
In subsection (1), after paragraph (a) insert—
35
“(aa)
section 140 does not apply in relation to that film,”.
      (3)
After subsection (3) insert—
“(3A)
But the total amount allocated under this section may not exceed the
total production expenditure in respect of the original master
version.”
40
      (4)
In subsection (5), omit Calculation 2.

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 2 — Restrictions on amount of relief which may be obtained
96

      (5)
After subsection (6) insert—
“(6A)
Where the total acquisition expenditure incurred by the person in
respect of the original master version exceeds the total production
expenditure in respect of the original master version, the calculations
in subsection (5) have effect as if that total acquisition expenditure
5
were an amount equal to that total production expenditure.”
      (6)
Subject to sub-paragraphs (7) to (9), the amendments made by this
paragraph have effect for the year 2005-06 and subsequent years of
assessment.
      (7)
Those amendments do not have effect in relation to expenditure relating to
10
films which had their first day of principal photography before 2nd
December 2004.
      (8)
The amendments made by sub-paragraphs (2) and (4) do not have effect in
relation to cases to which section 138A of ITTOIA 2005 applies in which any
of the expenditure within subsection (1)(a) of that section is pre-
15
announcement expenditure.
      (9)
Where, in a case to which section 138A of ITTOIA 2005 applies—
(a)
the total acquisition expenditure incurred by the person in respect of
the original master version consists of or includes an amount of pre-
announcement expenditure, and
20
(b)
the total amount of that pre-announcement expenditure exceeds the
total production expenditure in respect of the original master version
of the film in question (as defined for the purposes of that section by
section 141 of that Act),

the references in subsections (3A) and (6A) of that section to that total
25
production expenditure are to be read as references to the total amount of
that pre-announcement expenditure.
Section 139 of the Income Tax (Trading and Other Income) Act 2005
13    (1)
In section 139 of ITTOIA 2005 (certified master versions: production
expenditure on limited-budget films), in subsection (5)(d) omit “, or section
30
42 of that Act (but not as applied by section 48(1) and (2) of F(No.2)A 1997),”.
      (2)
The amendment made by this paragraph has effect for the year 2005-06 and
subsequent years of assessment.
      (3)
But that amendment does not have effect—
(a)
in relation to expenditure relating to films which had their first day
35
of principal photography before 2nd December 2004, or
(b)
in any case to which section 139 of ITTOIA 2005 applies where any
of the expenditure within subsection (1)(a) of that section is pre-
announcement expenditure.
Section 140 of the Income Tax (Trading and Other Income) Act 2005
40
14    (1)
In section 140 of ITTOIA 2005 (certified master versions: acquisition
expenditure on limited-budget films), in subsection (6)(d) omit “, or section
42 of that Act (but not as applied by section 48(1) to (3) of F(No.2)A 1997),”.
      (2)
The amendment made by this paragraph has effect for the year 2005-06 and
subsequent years of assessment.
45

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 2 — Restrictions on amount of relief which may be obtained
97

      (3)
But that amendment does not have effect—
(a)
in relation to expenditure relating to films which had their first day
of principal photography before 2nd December 2004, or
(b)
in any case to which section 140 of ITTOIA 2005 applies where any
of the expenditure within subsection (1)(a) of that section is pre-
5
announcement expenditure.
Section 141 of the Income Tax (Trading and Other Income) Act 2005
15    (1)
Section 141 of ITTOIA 2005 (“total production expenditure in respect of the
original master version”) is amended as follows.
      (2)
In subsection (1) after “sections” insert “138A,”.
10
      (3)
In subsection (4) for “Any” substitute “For the purposes of sections 139(1)(e)
and 140(1)(f) only, any”.
      (4)
Subject to sub-paragraphs (5) to (7), the amendments made by this
paragraph have effect for the year 2005-06 and subsequent years of
assessment.
15
      (5)
Those amendments do not have effect in relation to expenditure relating to
films which had their first day of principal photography before 2nd
December 2004.
      (6)
Sub-paragraph (7) applies where, in a case to which section 140 of ITTOIA
2005 applies—
20
(a)
the film in question had its first day of principal photography on or
after 2nd December 2004,
(b)
any or all of the expenditure within subsection (1)(a) of that section
is pre-announcement expenditure,
(c)
the amount of that pre-announcement expenditure exceeds the new
25
expenditure cap, and
(d)
the amount of the original expenditure cap exceeds the amount of
the new expenditure cap.
      (7)
Where this sub-paragraph applies, the reference in subsection (5) of section
140 of that Act to “the total production expenditure in respect of the original
30
master version” is to be read as a reference to the lower of—
(a)
the amount of that pre-announcement expenditure, and
(b)
the amount of the original expenditure cap.
      (8)
For the purposes of sub-paragraphs (6) and (7), in a case to which section 140
of that Act applies—
35
“the new expenditure cap” means the amount of “the total production
expenditure in respect of the original master version” as defined for
the purposes of subsection (5) of that section by section 141 of that
Act as amended by this paragraph;
“the original expenditure cap” means the amount of “the total
40
production expenditure in respect of the original master version” as
defined for those purposes by section 141 of that Act disregarding
the amendments made by this paragraph.