Clause 112 introduces a number of minor provisions
which clarify the existing tax treatment of expenditure on the
production or acquisition of films, tapes and discs. It outlines
what expenditure is regarded as revenue for the purposes of tax
relief and what rights are within the relief. It also makes clear
that only films completed on or after 10th March 1992
are eligible for tax relief under S42 of the Finance (No2) Act
1992. The new definitions apply to films that started shooting
on or after 21st March 2000. The person incurring the
expenditure on films which started shooting before 21st
March, but are completed afterwards can make an irrevocable election
to be treated under either the old or the new definitions. For
films, tapes or discs acquired after 6th April 2000
the new definitions apply notwithstanding when filming commenced.
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DETAILS OF THE CLAUSE
Subsection (1) substitutes a new subsection
(1) in Section 68 of the Capital Allowances Act 1990. The new
subsection explains that expenditure incurred on the production
of a film, tape or disc is to be regarded as revenue expenditure
for the purposes of the Taxes Acts. An exception is made for British
qualifying films dealt with under subsection (9) of S68.
Subsection (2) inserts a new subsection
(2) in Section 68 which clarifies what rights have to be held
with the master to be affected by S68. It also states that any
reference to the master includes a reference to any rights held
with the master.
Subsection (3) substitutes a new subsection
(9) in Section 42 of the Finance (No2) Act 1992. The new section
provides that S42 has effect in relation to a film completed on
or after 10 March 1992 or to
the acquisition of the master negative, tape or
disc of a film completed on or after that date.
Subsection (4) inserts new wording in Section
43 of the Finance (No2) Act 1992. Subparagraph (a) deletes the
current words "any description of rights in it" in S43(2)(b)
and replaces them with a form of words indicating that only rights
that are acquired with and held with the master will qualify for
relief under S68. It also deletes paragraph (b) of S43(3) and
the word "or" just before it.
Subsection (5) states that this clause
applies to expenditure on the production of a film if the first
day of principal photography is on or after 21st March
2000. It also provides that if the first day of principal photography
was before 21st March, but the film is completed on
or after that date, then the person incurring the expenditure
can elect for the provisions of this section to apply. Such an
election is irrevocable. The clause defines a film as completed
when it is first in a form in which it can reasonably be regarded
as ready for copies to be made and distributed for presentation
to the general public.
Subsection (6) provides that the Clause
applies to expenditure incurred on the acquisition of a master
negative, master tape or master audio disc of a film (as defined
in S43 Finance (No2) Act 1992 on or after 6 April 2000.
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BACKGROUND
The UK has several pieces of legislation relating
to tax relief for films. These are Section 68 of the Capital Allowances
Act 1990, Sections 41, 42, 43 and 69 of the Finance (No 2) Act
1992, Section 48 of the Finance (No 2) Act 1997 and Section 62
of the Finance Act 1999.
The legislation was enacted in several stages
and the new clause clarifies a number of points that have arisen
at the boundaries of the present legislation.
Subsection (1) does away with the present definition
of expenditure and replaces it with a simpler one. The present
definition uses the criteria of expenditure incurred on the production
or acquisition of a film tape or disc which would (apart from
S68) constitute capital expenditure on plant and machinery. This
clause replaces it with a simple statement that expenditure incurred
on the production of a film tape or disc shall be regarded …
as expenditure of a revenue nature. It includes the same cut out
for British qualifying films as the present definition does.
The clause also replaces the present S68(2) with
a clearer definition, linking it to that used in s43 F(No2)A 1992
- which applies for S41 and s42 purposes. It also replaces the
current definition in s43 making it clear that both sections apply
to the same income. Also replaced is the old wording of "any
description of rights" with a straightforward statement indicating
that only rights that are acquired with and held with the master
will qualify for relief under S68.
The present wording of Section 42 has given rise
to doubts about whether older films were eligible for relief under
this section. Therefore this clause makes it clear that it only
applies to films completed or acquired on or after 10th
March 1992.
The new clause applies to films that start shooting
on or after 21st March 2000. So as to provide flexibility
for films that started shooting before that date but which will
be completed afterwards the person incurring the expenditure can
elect to be dealt with under either the old or the new provisions.
The new provisions apply to films etc acquired on or after 6 April
2000.
