Clause 1148: Election under section 1147

2949.     This clause sets out the requirements for making an election. It is based on paragraph 1 of Schedule 22 to FA 2001.

Clause 1149: Additional deduction for qualifying land remediation expenditure

2950.     This clause entitles a company to make a claim increasing the deduction given in calculating its trade or UK property business profits if certain conditions are met. It is based on paragraphs 12 and 13 of Schedule 22 to FA 2001.

2951.     Subsection (1) is a further example of Change 77 in Annex 1 where it is made clear that the additional relief applies only for corporation tax.

2952.     This clause applies to expenditure that is allowed as a deduction in computing taxable profits either as a normal revenue deduction or through the operation of clause 1147. The relief increases the amount of the deduction by 50%.

2953.     The additional deduction has to be claimed. There is no special procedure for making the claim. The ordinary rules in Part 7 of Schedule 18 to FA 1998 apply.

Clause 1150: No relief if company responsible for contamination

2954.     This clause denies relief if the company or a person connected with it was responsible for any part of the contamination. It is based on paragraphs 1 and 12 of Schedule 22 to FA 2001.

Chapter 3: Land remediation tax credit

Clause 1151: Entitlement to and payment of tax credit

2955.     This clause allows a company to claim a land remediation tax credit if it has a “qualifying land remediation loss”. It is based on paragraphs 14 and 16 of Schedule 22 to FA 2001.

2956.     The clause clarifies that a company may make part claims (subsection (2)). This is in line with current HMRC policy and is supported by paragraph 17(5)(b) of Schedule 22 to FA 2001.

Clause 1152: Meaning of “qualifying land remediation loss”

2957.     This clause defines “qualifying land remediation loss”. It is based on paragraph 14 of Schedule 22 to FA 2001.

2958.     Subsection (2) limits the amount of the qualifying land remediation loss to the lesser of two amounts.

Clause 1153: Amount of a loss which is “unrelieved”

2959.     This clause explains what is meant by the amount of a UK property business loss or trading loss that is “unrelieved”. It is based on paragraph 14 of Schedule 22 to FA 2001.

Clause 1154: Amount of tax credit

2960.     This clause gives the amount of the cash payment the company will receive. It is based on paragraph 15 of Schedule 22 to FA 2001.

Clause 1155: Payment of tax credit

2961.     This clause gives a number of administrative rules that affect the payment of a land remediation tax credit. It is based on paragraph 16 of Schedule 22 to FA 2001.

Clause 1156: Tax credit payment not income of company

2962.     This clause states that the payment of a land remediation tax credit is not income of the company for any tax purposes. It is based on paragraph 18 of Schedule 22 to FA 2001.

Clause 1157: Exclusion for capital gains purposes of certain expenditure

2963.     This clause prevents any expenditure for which a land remediation tax credit has been claimed from also being deducted in the calculation of any chargeable gain on the disposal of the land. It is based on paragraph 19 of Schedule 22 to FA 2001.

2964.     Section 39 of TCGA prevents expenditure that is allowable as a deduction in calculating income tax profits from being deducted again in the calculation of the chargeable gain. Section 8(3) and (4) of TCGA applies this principle to the calculation of a company’s income and chargeable gains.

2965.     The ordinary operation of section 39 of TCGA will prevent a double deduction for expenditure which attracts relief under clauses 1147 and 1149. Amounts allowed under those clauses will be deducted in calculating the company’s profits charged to corporation tax. But it is arguable that a loss surrendered in return for the payment of a land remediation tax credit falls outside this rule as the loss is not used in the ordinary calculation of the company’s profits.

2966.     This clause makes clear that expenditure that contributed to the surrendered qualifying land remediation loss is not deductible in calculating the chargeable gain or allowable loss on the disposal of the land. It is not necessary to apply the rule to the 50% additional deduction itself as it is a notional figure and not an amount of actual expenditure.

Clause 1158: Restriction on losses carried forward where tax credit claimed

2967.     This clause ensures that the amount of any qualifying land remediation loss surrendered in return for the payment of a land remediation tax credit is not available for carry forward for set-off against future profits. It is based on paragraph 17 of Schedule 22 to FA 2001.

Chapter 4: Special provision for life assurance business

Clause 1159: Limitation on relief under Chapter 2

2968.     This clause provides that the deductions allowed in Chapter 2 do not apply to the calculation of the profits of a company’s life assurance business where the calculation is made in accordance with the provisions of Part 3 (trading income). It is based on paragraph 20 of Schedule 22 to FA 2001.

Clause 1160: Provision in respect of I minus E basis

2969.     This clause provides that the provisions of this Chapter apply where the profits of an insurance company are charged to tax under the I minus E basis in respect of its life assurance business. It is based on paragraph 21 to Schedule 22 to FA 2001.

Clause 1161: Relief in respect of I minus E basis: enhanced expenses payable

2970.     This clause sets out the three conditions that companies with life assurance business must satisfy in order to claim relief for expenditure on the remediation of contaminated land. It also sets out the relief that is available (subsection (6)). It is based on paragraphs 22 and 23 of Schedule 22 to FA 2001.

2971.     The relief takes the form of an enhancement in the expenses payable which the company may bring into account at Step 1 of section 76(7) of ICTA.

Clause 1162: Meaning of “qualifying Chapter 4 expenditure”

2972.     This clause defines a company’s “qualifying Chapter 4 expenditure” as the amount of its qualifying land remediation expenditure reduced by any amount not attributable to basic life assurance and general annuity business (BLAGAB). It is based on paragraph 22 of Schedule 22 to FA 2001.

2973.     Qualifying Chapter 4 expenditure may include expenditure of a capital nature.

Clause 1163: No relief if company responsible for contamination

2974.     This clause denies relief if the company or a person connected with it was responsible for any part of the contamination. It is the life assurance company equivalent of clause 1150. It is based on paragraph 22 of Schedule 22 to FA 2001.

Clause 1164: Entitlement to tax credit

2975.     This clause allows a company to claim a life assurance company tax credit if it has a “qualifying life assurance business loss”. It is the life assurance company equivalent of clause 1151 and is based on paragraph 24 of Schedule 22 to FA 2001.

Clause 1165: Meaning of “qualifying life assurance business loss”

2976.     This clause defines “qualifying life assurance business loss”. It is the life assurance company equivalent of clause 1152. It is based on paragraph 24 of Schedule 22 to FA 2001.

Clause 1166: Amount of tax credit

2977.     This clause gives the amount of the cash payment the company carrying on life assurance business will receive. It is the life assurance company equivalent of clause 1154 and is based on paragraph 25 of Schedule 22 to FA 2001.

Clause 1167: Payment of tax credit etc

2978.     This clause applies various provisions contained in Chapter 3 (namely clauses 1151(4), 1155, 1156 and 1157) with appropriate modifications for companies carrying on life assurance business. Those provisions include provision relating to the payment of a life assurance company tax credit. It is based on paragraphs 26 and 28 of Schedule 22 to FA 2001.

Clause 1168: Restriction on carrying forward expenses payable where tax credit claimed

2979.     This clause ensures that the amount of any qualifying life assurance business loss that is surrendered in return for the payment of a life assurance company tax credit is not available for carry forward. It is the life assurance company equivalent of clause 1158. It is based on paragraph 27 of Schedule 22 to FA 2001.

Chapter 5: Tax avoidance

Clause 1169: Artificially inflated claims for relief or tax credit

2980.     This clause restricts the amount of relief or tax credit available under the Part if there are arrangements that artificially increase the amount of that relief or tax credit. It is based on paragraph 29 of Schedule 22 to FA 2001.

Chapter 6: Supplementary

Clause 1170: “Staffing costs”

2981.     This clause gives the meaning of staffing costs. It is based on paragraph 5 of Schedule 22 to FA 2001. That paragraph uses the term “employee costs”, but in rewriting the source legislation it was felt that the term “staffing costs”, which is the term used for the equivalent purpose in Part 13 of the Bill, was more appropriate.

2982.     Paragraph 5(1)(a) of Schedule 22 to FA 2001 refers to “emoluments paid by the company .. including all salaries, wages, perquisites and profits whatsoever other than benefits in kind”. This is based on the definition of emoluments that section 131 of ICTA applied for Schedule E before that Schedule was rewritten by ITEPA.

2983.     ITEPA amended paragraph 5 of Schedule 20 to FA 2000 so that it referred to earnings which constitute employment income. In doing so it inadvertently expanded the definition to include benefits in kind. This change was reversed by paragraph 7 of Schedule 17 to FA 2004, which reinstated the original wording.

2984.     In rewriting Schedule 22 to FA 2001 it was decided that the language and format of the definition should be adapted so that the definition applies more clearly from the position of the company making the payment rather than the employee receiving it. Hence the reference to money earnings and reimbursed expenses.

2985.     Subsection (2) rewrites the reference to salaries and wages by reference to money earnings. Subsection (3) rewrites the reference to perquisites and profits by reference to reimbursed expenses. See Change 79 in Annex 1.

2986.     Paragraph 5(1)(c) of Schedule 22 to FA 2001 refers to “contributions paid by the company to any pension fund (within the meaning of section 231A(4) of [ICTA])”. Section 231A of ICTA was repealed by F(No 2)A 1997 with effect for distributions made on or after 6 April 1999. But a consequential amendment was not made to paragraph 5 of Schedule 22 so as to set out in full the definition of “pension fund”.

2987.     The parallel definition in paragraph 5(1)(c) of Schedule 20 to FA 2000 also used to refer to section 231A(4) of ICTA. It was amended by paragraph 3 of Schedule 15 to FA 2002. The wording of the definition is the same but it is now free-standing. Subsection (6) provides a freestanding definition of “pension fund” that reflects the definition used in paragraph 5(1A) of Schedule 20 to FA 2000.

Clause 1171: Staffing costs attributable to relevant land remediation

2988.     This clause identifies when staffing costs are attributable to relevant land remediation. It is based on paragraph 5 of Schedule 22 to FA 2001.

Clause 1172: Expenditure on materials

2989.     This clause outlines whether expenditure on materials is attributable to land remediation. It is based on paragraph 6 of Schedule 22 to FA 2001.

Clause 1173: Expenditure incurred because of contamination

2990.     This clause identifies two specific circumstances in which condition B in clause 1144 - the condition that expenditure on contaminated land would not have been incurred if the land had not been in a contaminated state - is treated as met. It is based on paragraph 7 of Schedule 22 to FA 2001.

Clause 1174: Sub-contractor payments

2991.     This clause defines “sub-contractor payment” and is the first of three clauses that deal with such payments. It is based on paragraph 9 of Schedule 22 to FA 2001.

Clause 1175: “Qualifying expenditure on sub-contracted land remediation”: connected persons

2992.     This clause identifies the amount of qualifying expenditure on sub-contracted land remediation if the parties are connected. It is based on paragraph 10 of Schedule 22 to FA 2001.

Clause 1176: “Qualifying expenditure on sub-contracted land remediation”: other cases

2993.     This clause identifies the amount of qualifying expenditure on sub-contracted land remediation if the parties are not connected. It is based on paragraph 11 of Schedule 22 to FA 2001.

Clause 1177: “Subsidised expenditure”

2994.     This clause defines “subsidised expenditure”. It is based on paragraph 8 of Schedule 22 to FA 2001.

Clause 1178: Persons having a “relevant connection” to a company

2995.     This clause sets out when a person has a “relevant connection” to a company for the purposes of the Part. It is based on paragraph 31 of Schedule 22 to FA 2001.

Clause 1179: Other definitions

2996.     This clause provides definitions and is based on paragraph 31 of Schedule 22 to FA 2001.

2997.     “National insurance contributions” is defined in clause 1319.

2998.     This Bill does not rewrite paragraph 30 of Schedule 22 to FA 2001. This provision is no longer required, since the rule allowing the Commissioners for HMRC to deduct money for tax credits before paying their receipts into the Consolidated Fund is set out in sufficiently general terms in section 44 of CRCA (see subsections (1) and (3)(d) of that section). Paragraph 26 of Schedule 13 to FA 2002, which made similar provision to that made by paragraph 30 of Schedule 22 to FA 2001, was repealed by paragraph 96 of Schedule 4 to CRCA.

Part 15: Film production

Overview

2999.     This Part treats certain film production and exploitation activity by certain companies as separate film trades for corporation tax. It is based on Chapter 3 of Part 3 of, and Schedules 4 and 5 to, FA 2006 (films and sound recordings).

3000.     In relation to some separate film trades, this Part also provides for:

• additional trading deductions; and

• payments for the surrender of losses.

3001.     This Part deals solely with film production companies. Provisions about the corporation tax treatment of sound recordings are dealt with in Chapter 9 of Part 3 (trade profits: other specific trades).

Chapter 1: Introduction

Clause 1180: Overview of Part

3002.     This clause gives an overview of the Part. It is new.

Clause 1181: “Film” etc

3003.     This clause provides for the meaning of “film” in this Part, when a series of films is treated as a single film and when a film is completed. It is based on section 31 of FA 2006.

3004.     The definitions are the same as those in paragraph 1 of Schedule 1 to the Films Act 1985 (certification of British films for purposes of film tax relief) which was substituted by paragraph 17 of Schedule 5 to FA 2006.

Clause 1182: “Film production company”

3005.     This clause defines “film production company” for this Part. It is based on section 32 of FA 2006.

3006.     There can be at most one company that fits the description of “film production company” in relation to a particular film. There may be no such company. A company might be a film production company in relation to some of the films that it is involved with but not in relation to others.

3007.     If a company is the film production company in relation to a particular film its production and exploitation activities in relation to the film are, for corporation tax purposes, treated as a separate trade (see Chapter 2: taxation of activities of film production company). A film production company may, but need not, be entitled to additional reliefs in relation to the film concerned (see Chapter 3: film tax relief).

3008.     Subsection (7) provides for a company to elect that it is not to be treated as a film production company in relation to films. Such an election is likely to be helpful to companies that are not entitled to additional reliefs in relation to films that they are involved with.

Clause 1183: “Film-making activities” etc

3009.     This clause gives the meaning of “film-making activities” for this Part and gives the Treasury power to make regulations that alter the meaning. It is based on section 33 of FA 2006.

3010.     The activities mentioned in subsection (1) are not further defined. Those activities are however well understood in the film industry.

3011.     Subsection (2) ensures that principal photography has an appropriate meaning in cases where images for a film are generated by computer.

Clause 1184: “Production expenditure”, “core expenditure” and “limited-budget film”

3012.     This clause defines the terms “production expenditure”, “core expenditure” and “limited-budget film”. It is based on section 34 of FA 2006.

3013.     Limited-budget films are eligible for more generous reliefs than other films (see clauses 1200(3) and 1202(3)). To reduce the risk of exploitation by arrangements involving connected parties, subsection (3) substitutes, in certain cases, (greater) arms length prices in determining whether a film is a limited-budget film.

Clause 1185: “UK expenditure” etc

3014.     This clause gives the meaning of “UK expenditure” in this Part and gives the Treasury power to make regulations that alter the meaning. It is based on section 35 of FA 2006.

3015.     Subsection (2) provides that any apportionment of expenditure be made on a “just and reasonable basis”. The source legislation refers to “fair and reasonable”. The formulation used in this clause has generally been adopted in ITTOIA and ITA. See Change 12 in Annex 1.

Clause 1186: “Qualifying co-production” and “co-producer”

3016.     This clause defines “qualifying co-production” and “co-producer” for this Part. It is based on section 36 of FA 2006.

Clause 1187: “Company tax return”

3017.     This clause defines “company tax return”. It is based on section 32(10) of FA 2006.

3018.     Whilst the definition in section 32(10) of FA 2006 is not explicitly applied to instances where the term “company tax return” appears in Schedules 4 and 5 to FA 2006, it is considered that the same meaning applies in those instances. So the definition in this clause applies to the whole Part.

Chapter 2: Taxation of activities of film production company

Clause 1188: Activities of film production company treated as a separate trade

3019.     This clause treats a film production company’s activities in relation to the film as a separate trade for corporation tax purposes and provides for when that trade is treated as starting. It is based on section 37 of, and paragraphs 2 and 3 of Schedule 4 to, FA 2006.

3020.     Subsection (3) introduces the label “the separate film trade” in this Chapter as a means of avoiding cumbersome references such as “the separate trade that a film production company is treated as carrying on in relation to the film in respect of which it is the film production company”.

Clause 1189: Calculation of profits or losses of separate film trade

3021.     This clause provides rules for bringing into account income from the film (as defined) and costs of the film (as defined) in calculating the profit or loss of the separate film trade for a period of account. It is based on paragraph 7 of Schedule 4 to FA 2006.

Clause 1190: Income from the film

3022.     This clause gives the meaning in this Chapter of the term “income from the film”. It is based on paragraph 6 of Schedule 4 to FA 2006.

3023.     Subsection (3) provides that capital receipts are treated as having a revenue nature for this purpose. So, for instance, all receipts from the sale of the film will be treated as income for the purposes of this clause.

Clause 1191: Costs of the film

3024.     This clause gives the meaning in this Chapter of the term “costs of the film”. It is based on paragraph 5 of Schedule 4 to FA 2006.

3025.     Subsection (3) prevents expenditure being treated as capital purely because it is on the creation of the film. It does not therefore apply to, say, capital expenditure on plant and machinery since that would be capital regardless of the creation of the film.

Clause 1192: When costs are taken to be incurred

3026.     This clause makes provision about when costs are taken to be incurred. It is based on paragraph 9 of Schedule 4 to FA 2006.

3027.     To prevent avoidance costs are, for instance, not to be treated as incurred before they are the subject of an unconditional obligation and are reflected in the state of completion of the work in progress.

Clause 1193: Pre-trading expenditure

3028.     This clause allows expenditure incurred on development of the film, but before the separate film trade starts, to be treated as incurred immediately after the separate film trade starts. It is based on paragraph 4 of Schedule 4 to FA 2006.

3029.     If pre-trading expenditure is treated in this fashion, the company must amend any company tax returns that have previously taken account of the same expenditure.

Clause 1194: Estimates

3030.     This clause provides that estimates for the purposes of this Chapter are to be made at the balance sheet date and on a just and reasonable basis. It is based on paragraph 8 of Schedule 4 to FA 2006.

3031.     The clause provides that any estimate is to be made on a “just and reasonable basis”. The source legislation refers to “fair and reasonable”. The formulation used in this clause has generally been adopted in ITTOIA and ITA. See Change 12 in Annex 1.