Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 1 — Entitlement to film tax relief
169

Additional deduction in computing profits of trade
2
The film production company may (on making a claim) make an additional
deduction in calculating the profit or loss of its trade in respect of qualifying
expenditure on the film.
Qualifying expenditure
5
3     (1)
Qualifying expenditure for this purpose means core expenditure on the film
that falls to be taken into account under Schedule 4 in calculating the profit
or loss of the trade for tax purposes.
      (2)
The Treasury may by regulations—
(a)
amend sub-paragraph (1);
10
(b)
provide that expenditure of a specified description is or is not to be
regarded for the purposes of this Part of this Schedule as qualifying
expenditure.
      (3)
No such regulations shall be made unless a draft of the regulations has been
laid before and approved by a resolution of the House of Commons.
15
Amount of additional deduction
4     (1)
For the first period of account during which the trade is carried on the
amount of the additional deduction is given by—

where—
E is—
20
(a)
so much of the qualifying expenditure as is UK expenditure,
or
(b)
if less, 80% of the total amount of qualifying expenditure; and
R is the rate of enhancement (see paragraph 5).
      (2)
For any period of account after the first the amount of the additional
25
deduction is given by—

where—
E is—
(a)
so much of the qualifying expenditure incurred to date as is
UK expenditure, or
30
(b)
if less, 80% of the total amount of qualifying expenditure
incurred to date,
R is the rate of enhancement (see paragraph 5), and
P is the amount of the additional deduction given in the previous
period or, as the case may be, the aggregate amount of the additional
35
deductions given in previous periods.
      (3)
The Treasury may by regulations amend the percentage stated in sub-
paragraph (1) or (2).

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 1 — Entitlement to film tax relief
170

      (4)
No such regulations shall be made unless a draft of the regulations has been
laid before and approved by a resolution of the House of Commons.
Rate of enhancement
5
The rate of enhancement is—
(a)
for a limited-budget film, 100%;
5
(b)
for a film other than a limited-budget film, 80%.
Film tax credits
6     (1)
A film production company may claim a film tax credit for an accounting
period in which it has a surrenderable loss.
      (2)
The amount of the company’s surrenderable loss in any period is equal to
10
whichever is the less of—
(a)
the amount of its trading loss for that period, and
(b)
the available qualifying expenditure.
      (3)
For the first period of account during which the trade is carried on, the
available qualifying expenditure is the amount that is E for that period for
15
the purposes of paragraph 4(1).
      (4)
For any period of account after the first, the available qualifying expenditure
is given by—

where—
E is the amount that is E for that period for the purposes of paragraph
20
4(2), and
S is the amount surrendered in the previous period, or (as the case may
be) the aggregate amount of the amounts surrendered in previous
periods, under paragraph 7.
Amount of credit
25
7     (1)
The company may surrender the whole or part of its surrenderable loss in a
period.
      (2)
The amount of the film tax credit to which a company is entitled for a period
is given by the formula—

where—
30
L is the amount of the loss surrendered, and
R is the payable credit rate (see paragraph 8).
Payable credit rate
8
The payable credit rate is—
(a)
for a limited-budget film, 25%;
35
(b)
for a film other than a limited-budget film, 20%.

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 1 — Entitlement to film tax relief
171

Payment in respect of film tax credit
9     (1)
Where—
(a)
a company is entitled to a film tax credit for a period, and
(b)
makes a claim,

the Commissioners shall pay to the company the amount of the credit.
5
      (2)
An amount payable in respect of—
(a)
a film tax credit, or
(b)
interest on a film tax credit under section 826 of ICTA,

may be applied in discharging any liability of the company to pay
corporation tax.
10

To the extent that it is so applied the Commissioners’ liability under sub-
paragraph (1) is discharged.
      (3)
Where the company’s company tax return for the accounting period is
enquired into by the Commissioners, no payment in respect of a film tax
credit for that period need be made before the Commissioners’ enquiries
15
are completed (see paragraph 32 of Schedule 18 to FA 1998).

In those circumstances the Commissioners may make a payment on a
provisional basis of such amount as they think fit.
      (4)
No payment need be made in respect of a film tax credit for an accounting
period before the company has paid to the Commissioners any amount that
20
it is required to pay for payment periods ending in that accounting period—
(a)
under PAYE regulations,
(b)
under section 555 of ICTA (foreign entertainers), or
(c)
in respect of Class 1 national insurance contributions.
Payment in respect of film tax credit not income
25
10
A payment in respect of film tax credit is not income of the company for any
tax purpose.
Trading loss reduced by amount surrendered for film tax credit
11
The amount of a film production company’s trading loss for an accounting
period is reduced by any amount surrendered for a film tax credit.
30
No account to be taken of amounts if unpaid
12    (1)
In determining for the purposes of this Part of this Schedule the amount of
costs incurred on a film at the end of a period of account no account is to be
taken of any amount that has not been paid four months after the end of that
period.
35
      (2)
This is without prejudice to the operation of paragraph 9 of Schedule 4
(general rules as to when costs are taken to be incurred).
Artificially inflated claims for deduction or film tax credit
13    (1)
To the extent that a transaction is attributable to arrangements entered into
wholly or partly for a disqualifying purpose, it shall be disregarded in
40
determining for any period—

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 2 — Certification of British films for purposes of film tax relief
172

(a)
any additional deduction to which a company is entitled under this
Part of this Schedule, and
(b)
any film tax credit to which a company is entitled.
      (2)
Arrangements are entered into wholly or mainly for a disqualifying purpose
if their main object, or one of their main objects, is to enable a company to
5
obtain—
(a)
an additional deduction under this Part of this Schedule to which it
would not otherwise be entitled or of a greater amount than that to
which it would otherwise be entitled, or
(b)
a film tax credit to which it would not otherwise be entitled or of a
10
greater amount than that to which it would otherwise be entitled.
      (3)
In this paragraph “arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable.
Interpretation
14
In this Part of this Schedule—
15
“the Commissioners” means Her Majesty’s Commissioners for
Revenue and Customs;
“national insurance contributions” means contributions under Part 1 of
the Social Security Contributions and Benefits Act 1992 (c. 4) or Part
1 of the Social Security Contributions and Benefits (Northern
20
Ireland) Act 1992 (c. 7); and
“PAYE regulations” means regulations under section 203 of ICTA.
Part 2
Certification of British films for purposes of film tax relief
15
For section 6 of the Films Act 1985 (c. 21) (certification of master negatives,
25
tapes and discs for purposes of section 72 of FA 1982) substitute)—
“6
Certification of British films
Schedule 1 to this Act has effect with respect to the certification by
the Secretary of State of a film as a British film for the purposes of
film tax relief.”.
30
16
For the heading to Schedule 1 to that Act substitute “Certification of British
films for purposes of film tax relief”.
17
For paragraph 1 of that Schedule substitute—
“Preliminary
1     (1)
In this Schedule—
35
“film” includes any record, however made, of a sequence of
visual images that is capable of being used as a means of
showing that sequence as a moving picture;
“film production company” has the same meaning as in
Chapter 3 of Part 3 of the Finance Act 2006 (see section 32
40
of that Act).

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 2 — Certification of British films for purposes of film tax relief
173

      (2)
For the purposes of this Schedule each part of a series of films is
treated as a separate film, unless—
(a)
the films form a series with not more than 26 parts,
(b)
the combined playing time is not more than 26 hours, and
(c)
the series constitutes a self-contained work or is a series of
5
documentaries with a common theme,

in which case the films are treated as a single film.
      (3)
References in this Schedule to a film include the film soundtrack.
      (4)
For the purposes of this Schedule a film is completed when it is
first in a form in which it can reasonably be regarded as ready for
10
copies of it to be made and distributed for presentation to the
general public.”.
18
For paragraph 2 of that Schedule substitute—
“Applications for certification
2     (1)
The film production company may apply to the Secretary of State
15
for the certification of a film as a British film.
      (2)
The application may be for an interim or final certificate.
      (3)
An interim certificate is a certificate granted before the film is
completed that the film, if completed in accordance with the
proposals set out in the application, will be a British film.
20
      (4)
A final certificate is a certificate granted after the film is completed
that the film is a British film.
      (5)
The applicant must—
(a)
produce to the Secretary of State such books or other
documents relating to the application, and
25
(b)
provide the Secretary of State with such other information
with respect to it,

as the Secretary of State may require for the purposes of
determining the application.
      (6)
The Secretary of State may require information provided for the
30
purposes of the application to be accompanied by a statutory
declaration, by the person providing it, as to the truth of the
information.”.
19
For paragraph 3 of that Schedule substitute—
“Certification and withdrawal of certification
35
3     (1)
If the Secretary of State is satisfied that the requirements are met
for interim or final certification of a film as a British film, he shall
certify the film accordingly.
      (2)
If the Secretary of State is not satisfied that those requirements are
met, he shall refuse the application.
40
      (3)
An interim certificate—

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 2 — Certification of British films for purposes of film tax relief
174

(a)
may be given subject to conditions, and (unless the
Secretary of State directs otherwise) is of no effect if the
conditions are not met;
(b)
may be expressed to expire after a specified period, and
(unless the Secretary of State directs otherwise) ceases to
5
have effect at the end of that period; and
(c)
ceases to have effect when a final certificate is issued.
      (4)
If it appears to the Secretary of State that a film certified by him
under this Schedule ought not to have been certified, he shall
revoke its certification.
10

Unless the Secretary of State directs otherwise, a certificate that is
revoked is treated as never having had effect.”.
20
In paragraph 4 of that Schedule (British films for purposes of the Schedule),
for sub-paragraphs (1) to (3) substitute—
    “(1)
A film is a British film for the purposes of this Schedule if it passes
15
the relevant cultural test (see paragraph 4A, 4B or 4C).”.
21    (1)
Paragraph 5 of that Schedule (excluded films) is amended as follows.
      (2)
For sub-paragraph (1) substitute—
    “(1)
A film must not be certified as a British film for the purposes of
this Schedule if parts of the film whose playing time exceeds 10%
20
of the total playing time of the film are derived from a previous
film, unless—
(a)
the two films have the same film production company or
producer, and
(b)
the previous film has not been certified under this
25
Schedule.”.
      (3)
After sub-paragraph (2) insert—
    “(3)
For the purposes of this paragraph—
(a)
the film soundtrack shall be left out of account;
(b)
“producer” means the person by whom the arrangements
30
necessary for the making of the film are undertaken;
(c)
in relation to certification before the commencement of
Chapter 3 of Part 3 of the Finance Act 2006, references to
certification of a film shall be read as references to
certification of the master negative, tape or disc of the
35
film.”.
22
In paragraph 9 of that Schedule (determination of disputes) for the words
from “any decision of the Secretary of State” to “may” substitute “any
decision of the Secretary of State under paragraph 3 may”.
23
In paragraph 10 of that Schedule (regulations and orders)—
40
(a)
in sub-paragraph (1)(c), for “2(4)” substitute “2(6);
(b)
in sub-paragraph (2), for “4 to 8” substitute “4 to 5”.
Confidentiality of information
24    (1)
Section 18(1) of the Commissioners for Revenue and Customs Act 2005
(c. 11) (restriction on disclosure by Revenue and Customs officials) does not
45

Finance (No.2) Bill
Schedule 5 — Film tax relief: further provisions
Part 2 — Certification of British films for purposes of film tax relief
175

prevent disclosure to the Secretary of State for the purposes of his functions
under Schedule 1 to the Films Act 1985 (c. 21) (certification of films as British
films for the purposes of film tax relief).
      (2)
Information so disclosed may be disclosed to the UK Film Council.
      (3)
A person to whom information is disclosed under sub-paragraph (1) or (2)
5
may not otherwise disclose it except—
(a)
for the purposes of the Secretary of State’s functions under Schedule
1 to the Films Act 1985 (c. 21),
(b)
if the disclosure is authorised by an enactment,
(c)
in pursuance of an order of a court,
10
(d)
for the purposes of a criminal investigation or legal proceedings
(whether civil or criminal) connected with the operation of that
Schedule or this Chapter,
(e)
with the consent of the Commissioners for Her Majesty’s Revenue
and Customs, or
15
(f)
with the consent of each person to whom the information relates.
      (4)
The references in this paragraph to the functions of the Secretary of State
under Schedule 1 to the Films Act 1985 do not include those functions in so
far as they are exercised in relation to a film that commenced principal
photography before 1st April 2006.
20
Wrongful disclosure
25    (1)
A person commits an offence if—
(a)
he discloses information about a person in contravention of
paragraph 24(3), and
(b)
the person’s identity is specified in the disclosure, or can be deduced
25
from it.
      (2)
In sub-paragraph (1) “information about a person” means revenue and
customs information relating to a person within the meaning of section 19(1)
of the Commissioners for Revenue and Customs Act 2005 (c. 11) (wrongful
disclosure).
30
      (3)
It is a defence for a person charged with an offence under this paragraph to
prove that he reasonably believed—
(a)
that the disclosure was lawful, or
(b)
that the information had already and lawfully been made available
to the public.
35
      (4)
A person guilty of an offence under this paragraph is liable—
(a)
on conviction on indictment, to imprisonment for a term not
exceeding two years or a fine or both, or
(b)
on summary conviction, to imprisonment for a term not exceeding
twelve months or a fine not exceeding the statutory maximum or
40
both.
      (5)
A prosecution for an offence under this paragraph may be brought in
England and Wales only—
(a)
by the Director of Revenue and Customs Prosecutions, or
(b)
with the consent of the Director of Public Prosecutions.
45