Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 15 — Film production
Chapter 2 — Taxation of activities of film production company
552

1189
Calculation of profits or losses of separate film trade
(1)
This section applies for the purpose of calculating the profits or losses of the
separate film trade.
(2)
For the first period of account the following are brought into account—
(a)
as a debit, the costs of the film incurred (and represented in work done)
5
to date, and
(b)
as a credit, the proportion of the estimated total income from the film
treated as earned at the end of that period.
(3)
For subsequent periods of account the following are brought into account—
(a)
as a debit, the difference between the amount of the costs of the film
10
incurred (and represented in work done) to date and the corresponding
amount for the previous period, and
(b)
as a credit, the difference between the proportion of the estimated total
income from the film treated as earned at the end of that period and the
corresponding amount for the previous period.
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(4)
The proportion of the estimated total income treated as earned at the end of a
period of account is given by—

where—

C is the total to date of costs incurred (and represented in work done),

T is the estimated total cost of the film, and
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I is the estimated total income from the film.
Supplementary
1190
Income from the film
(1)
References in this Chapter to income from the film are to any receipts by the
company in connection with the making or exploitation of the film.
25
(2)
This includes—
(a)
receipts from the sale of the film or rights in it,
(b)
royalties or other payments for use of the film or aspects of it (for
example, characters or music),
(c)
payments for rights to produce games or other merchandise, and
30
(d)
receipts by the company by way of a profit share agreement.
(3)
Receipts that (apart from this subsection) would be regarded as of a capital
nature are treated as being of a revenue nature.
1191
Costs of the film
(1)
References in this Chapter to the costs of the film are to expenditure incurred
35
by the company on—
(a)
film-making activities in connection with the film, or
(b)
activities with a view to exploiting the film.

Corporation Tax Bill
Part 15 — Film production
Chapter 2 — Taxation of activities of film production company
553

(2)
This is subject to any provision of the Corporation Tax Acts prohibiting the
making of a deduction, or restricting the extent to which a deduction is
allowed, in calculating the profits of a trade.
(3)
Expenditure that (apart from this subsection) would be regarded as of a capital
nature only because it is incurred on the creation of an asset (the film) is treated
5
as being of a revenue nature.
1192
When costs are taken to be incurred
(1)
For the purposes of this Chapter costs are incurred when they are represented
in the state of completion of the work in progress.
(2)
Accordingly—
10
(a)
payments in advance of work to be done are ignored until the work has
been carried out, and
(b)
deferred payments are recognised to the extent that the work is
represented in the state of completion.
(3)
The costs incurred on the film are taken to include an amount that has not been
15
paid only if it is the subject of an unconditional obligation to pay.
(4)
If an obligation is linked to income being earned from the film, no amount is to
be brought into account in respect of the costs of the obligation unless an
appropriate amount of income is or has been brought into account.
1193
Pre-trading expenditure
20
(1)
This section applies if, before the company began to carry on the separate film
trade, it incurred expenditure on development of the film.
(2)
The expenditure may be treated as expenditure of the separate film trade and
as if incurred immediately after the company began to carry on that trade.
(3)
If expenditure so treated has previously been taken into account for other tax
25
purposes, the company must amend any relevant company tax return
accordingly.
(4)
Any amendment or assessment necessary to give effect to subsection (3) may
be made despite any limitation on the time within which an amendment or
assessment may normally be made.
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1194
Estimates
Estimates for the purposes of this Chapter must be made as at the balance sheet
date for each period of account, on a just and reasonable basis taking into
consideration all relevant circumstances.

Corporation Tax Bill
Part 15 — Film production
Chapter 3 — Film tax relief
554

Chapter 3
Film tax relief
Introductory
1195
Availability and overview of film tax relief
(1)
This Chapter applies for corporation tax purposes to a company that is the film
5
production company in relation to a film.
(2)
Relief under this Chapter (“film tax relief”) is available to the company if the
conditions specified in the following sections are met in relation to the film—
(a)
section 1196 (intended theatrical release),
(b)
section 1197 (British film), and
10
(c)
section 1198 (UK expenditure).
(3)
Film tax relief is given by way of—
(a)
additional deductions (see sections 1199 and 1200), and
(b)
film tax credits (see sections 1201 to 1203).
(4)
Sections 1204 to 1207 contain provision about unpaid costs, artificially inflated
15
claims and confidentiality of information.
(5)
In this Chapter “the separate film trade” means the company’s separate trade
in relation to the film (see section 1188).
(6)
See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the
procedure for making claims for film tax relief.
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Conditions of relief
1196
Intended theatrical release
(1)
The film must be intended for theatrical release.
(2)
For this purpose—
(a)
“theatrical release” means exhibition to the paying public at the
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commercial cinema, and
(b)
a film is not regarded as intended for theatrical release unless it is
intended that a significant proportion of the earnings from the film
should be obtained by such exhibition.
(3)
Whether this condition is met is determined for each accounting period of the
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company during which film-making activities are carried on in relation to the
film, in accordance with the following rules.
(4)
If at the end of an accounting period the film is intended for theatrical release,
the condition is treated as having been met throughout that period (subject to
subsection (5)(b)).
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(5)
If at the end of an accounting period the film is not intended for theatrical
release, the condition—
(a)
is treated as having been not met throughout that period, and
(b)
cannot be met in any subsequent accounting period.

Corporation Tax Bill
Part 15 — Film production
Chapter 3 — Film tax relief
555


This does not affect any entitlement of the company to relief in an earlier
accounting period for which the condition was met.
1197
British film
The film must be certified by the Secretary of State as a British film under
Schedule 1 to the Films Act 1985 (c. 21).
5
1198
UK expenditure
(1)
At least 25% of the core expenditure on the film incurred—
(a)
in the case of a British film other than a qualifying co-production, by the
company, and
(b)
in the case of a qualifying co-production, by the co-producers,
10

must be UK expenditure.
(2)
The Treasury may by regulations amend the percentage specified in subsection
(1).
Additional deductions
1199
Additional deduction for qualifying expenditure
15
(1)
If film tax relief is available to the company, it may (on making a claim) make
an additional deduction in respect of qualifying expenditure on the film.
(2)
The deduction is made in calculating the profit or loss of the separate film
trade.
(3)
In this Chapter “qualifying expenditure” means core expenditure on the film
20
that falls to be taken into account under Chapter 2 in calculating the profit or
loss of the separate film trade for tax purposes.
(4)
The Treasury may by regulations—
(a)
amend subsection (3), and
(b)
provide that expenditure of a specified description is or is not to be
25
regarded as qualifying expenditure.
1200
Amount of additional deduction
(1)
For the first period of account during which the separate film trade is carried
on, the amount of the additional deduction is given by—

where—
30

E is—
(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 subsection (3)).

Corporation Tax Bill
Part 15 — Film production
Chapter 3 — Film tax relief
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(2)
For any period of account after the first, the amount of the additional deduction
is given by—

where—

E is—
(a)
so much of the qualifying expenditure incurred to date as is UK
5
expenditure, or
(b)
if less, 80% of the total amount of qualifying expenditure
incurred to date,

R is the rate of enhancement (see subsection (3)), and

P is the total amount of the additional deductions given for previous
10
periods.
(3)
The rate of enhancement is—
(a)
for a limited-budget film, 100%, and
(b)
for any other film, 80%.
(4)
The Treasury may by regulations amend the percentage specified in subsection
15
(1) or (2).
Film tax credits
1201
Film tax credit claimable if company has surrenderable loss
(1)
If film tax relief is available to the company, it may claim a film tax credit for
an accounting period in which it has a surrenderable loss.
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(2)
The company’s surrenderable loss in any period is—
(a)
the company’s loss for the period in the separate film trade, or
(b)
if less, the available qualifying expenditure for the period.
(3)
For the first period of account during which the separate film trade is carried
on, the available qualifying expenditure is the amount that is E for that period
25
for the purposes of section 1200(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 section
30
1200(2), and

S is the total amount surrendered in previous periods under section
1202(1).
1202
Surrendering of loss and amount of film tax credit
(1)
The company may surrender the whole or part of its surrenderable loss in an
35
accounting period.

Corporation Tax Bill
Part 15 — Film production
Chapter 3 — Film tax relief
557

(2)
If the company surrenders the whole or part of that loss, the amount of the film
tax credit to which it is entitled for the accounting period is given by—

where—

L is the amount of the loss surrendered, and

R is the payable credit rate (see subsection (3)).
5
(3)
The payable credit rate is—
(a)
for a limited-budget film, 25%, and
(b)
for any other film, 20%.
(4)
The company’s loss in the separate film trade for the accounting period is
reduced by the amount surrendered.
10
1203
Payment in respect of film tax credit
(1)
If the company—
(a)
is entitled to a film tax credit for an accounting period, and
(b)
makes a claim,

the Commissioners for Her Majesty’s Revenue and Customs (“the
15
Commissioners”) must pay to the company the amount of the credit.
(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
20
tax.

To the extent that it is so applied the Commissioners’ liability under subsection
(1) is discharged.
(3)
If 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
25
need be made before the Commissioners’ enquiries 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 consider appropriate.
(4)
No payment need be made in respect of a film tax credit for an accounting
30
period before the company has paid to the Commissioners any amount that it
is required to pay for payment periods ending in that accounting period—
(a)
under PAYE regulations,
(b)
under section 966 of ITA 2007 (visiting performers), or
(c)
in respect of Class 1 contributions under Part 1 of the Social Security
35
Contributions and Benefits Act 1992 (c. 4) or Part 1 of the Social Security
Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).
(5)
A payment in respect of a film tax credit is not income of the company for any
tax purpose.