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 3 — Minor and consequential amendments
98

Section 142 of the Income Tax (Trading and Other Income) Act 2005
16    (1)
In section 142 of ITTOIA 2005 (when expenditure is incurred), in subsection
(1) for “139 and” substitute “138 to”.
      (2)
The amendment made by this paragraph has effect for the year 2005-06 and
subsequent years of assessment.
5
      (3)
But that amendment does not have effect—
(a)
in relation to films which had their first day of principal
photography before 2nd December 2004, or
(b)
in relation to pre-announcement expenditure.
Part 3
10
Minor and consequential amendments
Income and Corporation Taxes Act 1988 (c. 1)
17
Section 118ZM of ICTA (partnerships exploiting films: supplementary), as
that section has effect for years of assessment before the year 2005-06, has
effect as if for subsection (4) there were substituted—
15
“(4)
The reference in section 118ZL(6) to the acquisition of a film is a
reference to the acquisition of the original master version of the film;
and this subsection is to be construed in accordance with section 43
of the Finance (No.2) Act 1992.”
Finance (No.2) Act 1992 (c. 48)
20
18    (1)
Section 40A of F(No.2)A 1992 (revenue nature of expenditure on master
versions of films) is amended as follows.
      (2)
In subsection (1) for “a master” substitute “the original master”.
      (3)
In subsection (2) for “the master” in both places substitute “the original
master”.
25
      (4)
In subsection (3)—
(a)
for “a master” substitute “the original master”, and
(b)
for “the master” in both places substitute “the original master”.
      (5)
Omit subsection (5).
19    (1)
Section 40B of F(No.2)A 1992 (allocation of expenditure to periods) is
30
amended as follows.
      (2)
In subsection (1)—
(a)
after “exploitation of” insert “original”, and
(b)
in paragraph (a) for “a master” substitute “the original master”.
      (3)
In subsections (4) and (5) for “the master”, in each place, substitute “the
35
original master”.
20
In section 40C of F(No.2)A 1992 (cases where section 40B does not apply), for
“the master” in both places substitute “the original master”.

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 3 — Minor and consequential amendments
99

21    (1)
Section 40D of F(No.2)A 1992 (election for sections 40A and 40B not to apply)
is amended as follows.
      (2)
In subsection (2)—
(a)
in paragraph (a)—
(i)
in sub-paragraph (i) after “exploitation of” insert “original”,
5
and
(ii)
in sub-paragraph (ii) for “a master” substitute “the original
master”, and
(b)
in paragraphs (b) and (c) for “the master” substitute “the original
master”.
10
      (3)
In each of the following provisions for “the master”, in each place it occurs,
substitute “the original master”—
subsection (3)(a);
subsection (4) as it has effect, after 5th April 2005, for corporation tax
purposes for accounting periods ending after that date;
15
subsection (4) as it has effect in any other case;
subsection (6).
      (4)
In subsection (7) for “a master” substitute “the original master”.
22    (1)
Section 41 of F(No.2)A 1992 (relief for preliminary expenditure) is amended
as follows.
20
      (2)
In subsection (1) after “exploitation of” insert “original master versions of”.
      (3)
In subsections (3) and (4) for “master negative of the film or any master tape
or master disc” substitute “original master version”.
      (4)
In subsection (5) after “expenditure on” insert “the original master version
of”.
25
23    (1)
Section 42 of F(No.2)A 1992 (relief for production or acquisition
expenditure) is amended as follows.
      (2)
In subsection (1) after “exploitation” insert “of original master versions”.
      (3)
In subsection (2)—
(a)
for “of a film—” substitute “of the original master version of a film
30
where—”,
(b)
in paragraph (a) for first “which” substitute “the film”, and
(c)
in paragraph (b) for “master negative of which or any master tape or
master disc of which” substitute “original master version of the film”.
      (4)
In subsection (3)—
35
(a)
for “master negative of a film or any master tape or master disc”
substitute “original master version”, and
(b)
in paragraph (b) for “master negative, tape or disc” substitute
“original master version of the film”.
      (5)
In subsection (4)(a) for the words from “of the film” to the end substitute “or
40
acquisition of the original master version of the film concerned”.
      (6)
In subsection (7) after “acquisition” insert “of the original master version”.
      (7)
In subsection (8) for “the film” substitute “the original master version of the
film”.

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 3 — Minor and consequential amendments
100

      (8)
In subsection (9)—
(a)
in paragraph (a), after “production” insert “of the original master
version”, and
(b)
in paragraph (b), for “master negative, master tape or master disc”
substitute “original master version”.
5
24    (1)
Section 43 of F(No.2)A 1992 (interpretation of provisions relating to films) is
amended as follows.
      (2)
In subsection (1)—
(a)
insert the following definitions at the appropriate place—
““film” is to be construed in accordance with paragraph
10
1 of Schedule 1 to the Films Act 1985;”
““original master version”, in relation to a film, means
the original master negative, tape or disc (but see
subsections (2) and (2A));”,
(b)
omit the following definitions—
15
“master disc”
“master negative”
“master tape”, and
(c)
in the definition of “qualifying disc”, “qualifying film” and
“qualifying tape” for “a master” substitute “the original master”.
20
      (3)
For subsection (2) substitute—
“(2)
In sections 40A to 42 and this section, references to the original
master version of a film include the original master version of the
film soundtrack (if any).
(2A)
In those provisions, references to the original master version also
25
include any rights in the original master version that are held or
acquired with it.”
Finance Act 1997 (c.16)
25
In Schedule 12 to FA 1997 (leasing arrangements: finance leases and loans)
(as amended by Schedule 1 to ITTOIA 2005), in paragraph 11(9) after “138,”
30
insert “138A,”.
Finance (No. 2) Act 1997 (c. 58)
26    (1)
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) is amended as follows.
      (2)
In subsection (1), in the inserted subsection (4), for the words from “on—” to
35
the end of paragraph (b) substitute “on the production or acquisition of the
original master version of the film concerned,”.
      (3)
For subsection (6) substitute—
“(6)
In this section “total production expenditure” on a film, in relation to
a claim for relief under section 42 of the Finance (No.2) Act 1992,
40
means (subject to subsections (6A) and (7) below) the total of all
expenditure incurred on the production of the original master
version of the film, including expenditure incurred before 2nd July
1997 and whether or not incurred by the claimant.”

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 3 — Minor and consequential amendments
101

      (4)
In subsection (6A) for “the production expenditure on” substitute “the
expenditure incurred on the production of the original master version of”.
      (5)
In subsection (7), in paragraph (a) after “production of” insert “the original
master version of”.
      (6)
After subsection (7) insert—
5
“(7A)
In this section—
“film” has the meaning given by section 43 of the Finance (No.
2) Act 1992;
“original master version” is to be construed in accordance with
that section.”
10
Capital Allowances Act 2001 (c. 2)
27    (1)
Paragraph 116 of Schedule 3 to CAA 2001 (transitional provision relating to
sections 40A to 40D of F(No.2)A 1992 (films)) is amended as follows.
      (2)
In sub-paragraph (2)(b), for “master” in both places substitute “original
master”.
15
      (3)
In sub-paragraph (2)(c)—
(a)
for ““film,” substitute ““a film,”,
(b)
for first “master” substitute “the original master”, and
(c)
for second “master” substitute “original master”.
      (4)
In sub-paragraph (2)(d) for “substitution for section 40A(5)” substitute
20
“insertion after section 40A(4)”.
      (5)
In sub-paragraph (2)(e)—
(a)
for first “master” substitute “original master”,
(b)
for ““film,” substitute ““a film,”, and
(c)
for second “master” substitute “the original master”.
25
      (6)
In sub-paragraph (2)(f) to (i) for “master” in each place substitute “original
master”.
      (7)
In sub-paragraph (2)(j) for the words from first “for” to the end substitute
“for “original master versions of films”, of “a film, tape or disc” for “the
original master version of a film” and of “film, tape or disc” for “original
30
master version” (in both places);”.
      (8)
In sub-paragraph (2)(k) to (m) for “master” in each place substitute “original
master”.
      (9)
In sub-paragraph (2)(n)—
(a)
for ““film,” substitute ““a film,”, and
35
(b)
for “master” substitute “the original master”.
Finance Act 2002 (c. 23)
28
Section 99 of FA 2002 (restriction of relief to films genuinely intended for
theatrical release) in subsection (3) for “master version of the film” substitute
“original master version of the film (within the meaning given by section 43
40
of the Finance (No.2) Act 1992)”.

Finance (No. 2) Bill
Schedule 3 — Films: restrictions on relief for production and acquisition expenditure
Part 4 — Interpretation
102

29
In Schedule 29 to that Act (gains and losses of a company from intangible
fixed assets), in paragraph 80(2)(a) for “has the meaning” to “films)”
substitute “means an original master version of the film (within the meaning
given by section 43 of the Finance (No.2) Act 1992)”.
Income Tax (Trading and Other Income) Act 2005
5
30    (1)
ITTOIA 2005 is amended as follows.
      (2)
In section 139 (certified master versions: production expenditure on limited-
budget films), in subsection (1), after paragraph (a) insert—
“(aa)
the film was completed in, or before, that period,”.
      (3)
In section 140 (certified master version: acquisition expenditure on limited-
10
budget films), in subsection (1), after paragraph (a) insert—
“(aa)
the film was completed in, or before, that period,”.
      (4)
In Schedule 2 (transitionals and savings etc), in paragraph 34 for “Section 138
does” substitute “Sections 138 and 138A do”.
Commencement of Part 3 amendments
15
31    (1)
The amendment made by paragraph 21(3), so far as it relates to section
40D(4) of F(No.2)A 1992 as amended by Schedule 1 to ITTOIA 2005, has
effect for accounting periods ending after 5th April 2005.
      (2)
The amendments made by paragraphs 25 and 30 have effect for the year
2005-06 and subsequent years of assessment.
20
      (3)
The amendments made by the remaining provisions of this Part of this
Schedule are deemed to have come into force on 2nd December 2004.
Part 4
Interpretation
Meaning of “pre-announcement expenditure”
25
32    (1)
For the purposes of this Schedule “pre-announcement expenditure” means
expenditure incurred—
(a)
before 2nd December 2004, or
(b)
on or after that date in pursuance of an obligation to incur the
expenditure which immediately before that date was an
30
unconditional obligation.
      (2)
In determining, for the purposes of sub-paragraph (1), whether an
obligation in pursuance of which expenditure was incurred was an
unconditional obligation immediately before 2nd December 2004, the
obligation is not to be regarded as a conditional obligation at that time by
35
reason only that it was contingent on one or more of the following
conditions—
(a)
a condition the fulfilment of which was outside the control of the
person by whom the expenditure was incurred;
(b)
a condition that the original master version of the film concerned is
40
certified under Schedule 1 to the Films Act 1985 (c. 21) as a qualifying
film, tape or disc for the purposes of section 40D of F(No.2)A 1992.

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 1 — Bad debts and related matters
103

      (3)
For the purposes of this Schedule—
(a)
a claim under section 42 of F(No.2)A 1992 in respect of expenditure
incurred on the production or acquisition of the original master
version of a film is a “claim in respect of pre-announcement
expenditure only” if, and only if, all of the expenditure incurred by
5
the claimant on the production or, as the case may be, acquisition of
that version is pre-announcement expenditure, and
(b)
a deduction under any of sections 138 to 140 of ITTOIA 2005 in
respect of expenditure incurred on the production or acquisition of
the original master version of a film is a “deduction in respect of pre-
10
announcement expenditure only” if, and only if, all of the
expenditure within subsection (1)(a) of the section under which the
deduction is made is pre-announcement expenditure.
Meaning of film “in production”
33    (1)
For the purposes of this Schedule a film was “in production” on 2nd
15
December 2004 if it—
(a)
had its first day of principal photography before that date, and
(b)
was completed on or after that date.
      (2)
For this purpose a film is completed when it is first in a form in which it can
reasonably be regarded as ready for copies of it to be made and distributed
20
for presentation to the general public.
Meaning of “film” and “original master version”
34
For the purposes of this Schedule—
“film” is to be construed in accordance with paragraph 1 of Schedule 1
to the Films Act 1985 (c. 21);
25
“original master version” is to be construed in accordance with section
43 of F(No.2)A 1992.
Schedule 4
Section 80

Accounting practice and related matters
Part 1
30
Bad debts and related matters
ICTA
1
In section 74 of ICTA (general rules as to deductions not allowable), omit
subsection (1)(j) and subsection (2) (bad debts and related matters).
2
Before section 89 of ICTA insert—
35
“88D
Restriction of deductions in respect of certain debts
(1)
This section applies to debts to which the following provisions do
not apply—

Finance (No. 2) Bill
Schedule 4 — Accounting practice and related matters
Part 1 — Bad debts and related matters
104

(a)
Chapter 2 of Part 4 of the Finance Act 1996 (loan
relationships, etc);
(b)
Schedule 26 to the Finance Act 2002 (derivative contracts);
(c)
Schedule 29 to that Act (intangible fixed assets).
(2)
In calculating the profits of a company’s trade for the purposes of
5
corporation tax, no deduction is allowed in respect of a debt owed to
the company, except—
(a)
by way of impairment loss, or
(b)
to the extent that the debt is released wholly and exclusively
for the purposes of that trade as part of a statutory insolvency
10
arrangement.
(3)
In this section “debt” includes an obligation or liability that falls to be
discharged otherwise than by the payment of money.
(4)
In this section “trade” has the meaning given by section 6(4).”.
3     (1)
Section 89 of ICTA (debts proving to be irrecoverable after discontinuance
15
etc) is amended as follows.
      (2)
In that section as it had effect before ITTOIA 2005—
(a)
make the existing provision subsection (1),
(b)
for “deduction allowed in respect of them under section 74(j)”
substitute “relevant deduction in respect of them”, and
20
(c)
at the end add—
“(2)
In this section “debt” includes an obligation or liability that
falls to be discharged otherwise than by the payment of
money.

The references to a debt being irrecoverable shall be read
25
accordingly.
(3)
For the purposes of this section “relevant deduction”, in
relation to a debt, means a deduction made for tax purposes
in respect of an impairment loss or release.”.
      (3)
In that section as substituted by ITTOIA 2005—
30
(a)
in subsection (3), for the words from “deduction allowed” to
“ITTOIA 2005” substitute “relevant deduction in respect of them”,
and
(b)
after that subsection add—
“(4)
In this section “debt” includes an obligation or liability that
35
falls to be discharged otherwise than by the payment of
money.

The references to a debt being irrecoverable shall be read
accordingly.
(5)
For the purposes of this section “relevant deduction”, in
40
relation to a debt, means a deduction made for tax purposes
in respect of an impairment loss or release.”.
4     (1)
Section 94 of ICTA (debts deducted and subsequently released) is amended
as follows.