21 March 2000
TAX TREATMENT OF EXPENDITURE ON FILMS:
Measures to ensure the continued smooth operation of the present tax relief regime for the UK film industry are to be introduced in the forthcoming Finance Bill.
This is to clarify the legislation governing the tax treatment of expenditure on films, and is being done to provide certainty in a number of areas on which doubts have been expressed in the past.
1. Questions have been raised about the application of the legislation with respect to what rights are covered by it and whether those rights come within the definition of plant and machinery. Questions have also been asked about what income and expenditure comes within the legislation and whether tax relief is available for old films.
2. To ensure the continued smooth operation of the present tax relief regime and because the UK film industry needs certainty when dealing with the legislation it has been decided to settle these questions in a short piece of legislation in the Finance Bill.
3. The new legislation is intended simply to clarify points of doubt at the boundaries of the existing legislation. The revisions will apply from 6 April 2000 and it is intended that Statement of Practice 1/98 will be amended in due course to reflect the new legislation.
NOTES FOR EDITORS
1. There are six pieces of UK tax legislation dealing with films. These are Section 68 Capital Allowances Act 1990, Sections 41, 42, and 69 Finance (No 2) Act 1992, Section 48 Finance (No 2) Act 1997 and Section 62 Finance Act 1999.
2. Section 68 deems what would normally be capital expenditure to be revenue expenditure and allows it to be written off by two methods that roughly equate to accountancy practice. The effect is that no receipts from the film are charged to tax until all the production or acquisition expenditure of the film is written off. The section applies to tapes and disks, not just films.
3. Section 41 and subsequent sections apply only to British qualifying films i.e. those certified as ‘British’ by the Department for Culture, Media and Sport. S41 allows up to 20% of production expenditure to be written off on payment or later whilst s42 allows the same expenditure to be written off by one third a year over three years. S48 improved this for British films with budgets of £15 million or less completed on or after 2 July 1997 by allowing them a 100% write off of costs. S48 originally had a three year life, but was extended by the 1999 Finance Bill to 2 July 2002.
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