Income Tax (Trading and Other Income) Act 2005 (c. 5)

(The document as of February, 2008)

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(7) If any production or acquisition expenditure in respect of the original master version is allocated to the relevant period--

(a) under section 135 above, or

(b) under section 40B of F(No.2)A 1992,

no other production or acquisition expenditure in respect of the original master version may be allocated to the relevant period under this section.

Certified master versions: limited-budget films

139 Certified master versions: production expenditure on limited-budget films

(1) This section applies if--

(a) the person carrying on the trade has incurred production expenditure in respect of the original master version of a film in, or before, the relevant period,

(b) the expenditure was incurred before 2nd July 2005 (see section 142 for timing rule),

(d) the film is genuinely intended for theatrical release, and

(e) the total production expenditure in respect of the original master version is £15 million or less (see section 141).

(2) A deduction is allowed for the amount of the production expenditure allocated to the relevant period, but this is subject to the application of any prohibitive rule.

(3) The person carrying on the trade may allocate up to 100% of the production expenditure to the relevant period.

(4) Any expenditure which--

(a) has not been paid at the time the film is completed, and

(b) is not, at that time, the subject of an unconditional obligation to pay within 4 months after the date of completion,

is not regarded as production expenditure for the purposes of this section.

(5) Expenditure may not be allocated to the relevant period under this section if it is allocated--

(a) under this section to any other relevant period,

(b) under any other provision of this Chapter to the relevant period or any other relevant period,

(c) under section 42 of F(No.2)A 1992 as applied by section 48(1) and (2) of F(No.2)A 1997 (corporation tax provision corresponding to this section) to any other relevant period, or

(d) under section 40B or 41 of F(No.2)A 1992, or section 42 of that Act (but not as applied by section 48(1) and (2) of F(No.2)A 1997), to the relevant period or any other relevant period.

(6) If any production expenditure in respect of the original master version is allocated to the relevant period--

(a) under section 135 above, or

(b) under section 40B of F(No.2)A 1992,

no other production expenditure in respect of the original master version may be allocated to the relevant period under this section.

140 Certified master versions: acquisition expenditure on limited-budget films

(1) This section applies if--

(a) the person carrying on the trade has incurred acquisition expenditure in respect of the original master version of a film in, or before, the relevant period,

(b) the acquisition was a relevant acquisition (see subsection (2)),

(d) the original master version is a certified master version,

(e) the film is genuinely intended for theatrical release, and

(f) the total production expenditure in respect of the original master version is £15 million or less (see section 141).

(2) An acquisition is a relevant acquisition if--

(a) the acquisition is by the producer and the producer has not previously acquired the original master version of the film, or

(b) the acquisition is directly from the producer and the original master version of the film has not previously been acquired directly from the producer,

and for this purpose "the producer" means the person who commissions the making of the film and is entitled to control its exploitation.

(3) A deduction is allowed for the amount of the acquisition expenditure allocated to the relevant period, but this is subject to the application of any prohibitive rule.

(4) The person carrying on the trade may allocate up to 100% of the acquisition expenditure to the relevant period.

(5) But the total amount allocated under this section may not exceed the total production expenditure in respect of the original master version.

(6) Expenditure may not be allocated to the relevant period under this section if it is allocated--

(a) under this section to any other relevant period,

(b) under any other provision of this Chapter to the relevant period or any other relevant period,

(c) under section 42 of F(No.2)A 1992 as applied by section 48(1) to (3) of F(No.2)A 1997 to any other relevant period, or

(d) under section 40B or 41 of F(No.2)A 1992, or section 42 of that Act (but not as applied by section 48(1) to (3) of F(No.2)A 1997), to the relevant period or any other relevant period.

(7) If any acquisition expenditure in respect of the original master version is allocated to the relevant period--

(a) under section 135 above, or

(b) under section 40B of F(No.2)A 1992,

no other acquisition expenditure in respect of the original master version may be allocated to the relevant period under this section.

141 "Total production expenditure in respect of the original master version"

(1) The following provisions of this section define what is meant by "the total production expenditure in respect of the original master version" for the purposes of sections 139 and 140.

(2) "The total production expenditure in respect of the original master version" means the total of all the production expenditure in respect of the original master version--

(a) whenever the expenditure is incurred, and

(b) whether or not it is incurred by the person carrying on the trade.

(3) Any expenditure which--

(a) has not been paid at the time the film is completed, and

(b) is not, at that time, the subject of an unconditional obligation to pay within 4 months after the date of completion,

is ignored.

(4) Any part of the production expenditure in respect of the original master version which--

(a) is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

(b) might have been expected to have been of a greater amount ("the arm's length amount") if the transaction had been between independent persons dealing at arm's length,

is treated as having been of an amount equal to the arm's length amount.

142 When expenditure is incurred

(1) This section applies to determine when expenditure is treated as incurred for the purposes of sections 139 and 140.

(2) The general rule is that an amount of expenditure is treated as incurred as soon as there is an unconditional obligation to pay it.

(3) The general rule applies even if the whole or a part of the expenditure is not required to be paid until a later date.

(4) There are the following exceptions to the general rule.

(5) If under an agreement--

(a) the expenditure is on the provision of an original master version,

(b) an unconditional obligation to pay an amount of the expenditure comes into being as a result of the giving of a certificate or any other event,

(c) the giving of the certificate, or other event, occurs within the period of one month after the end of a relevant period, and

(d) at or before the end of the relevant period, the original master version has become the property of, or is otherwise under the agreement attributed to, the person subject to the unconditional obligation to pay,

the expenditure is treated as incurred immediately before the end of the relevant period.

(6) If under an agreement an amount of expenditure is not required to be paid until a date more than 4 months after the unconditional obligation to pay has come into being, the amount is treated as incurred on that date.

(7) If under an agreement--

(a) there is an unconditional obligation to pay an amount of expenditure on a date earlier than accords with normal commercial usage, and

(b) the sole or main benefit which might (as a result) have been expected to be obtained is that the amount would be treated, under the general rule, as incurred at an earlier time,

the amount is treated as incurred on the date on or before which it is required to be paid.

Election for sections 134 to 140 not to apply

143 Election for sections 134 to 140 not to apply

(1) A person carrying on a trade which consists of or includes the exploitation of original master versions of films may elect for sections 134 to 140 not to apply in relation to expenditure if--

(a) the person incurs expenditure on the production or acquisition of an original master version of a film,

(b) the original master version is a certified master version,

(d) the film is genuinely intended for theatrical release.

(2) The election must relate to all expenditure--

(a) incurred, or

(b) to be incurred,

on the production or acquisition of the original master version in question.

(3) The election is irrevocable.

(4) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which ends the relevant period in which the original master version of the film is completed.

(5) For this purpose a film is completed--

(a) at the time given by section 131(5), or

(b) if the expenditure is acquisition expenditure and the acquisition takes place after that time, at the time of the acquisition.

(6) No election may be made in relation to expenditure on the production or acquisition of an original master version of a film if any of that expenditure has been allocated--

(a) under any of sections 137 to 140 above, or

(b) under section 41 or 42 of F(No.2)A 1992.

Supplementary

144 Meaning of "genuinely intended for theatrical release"

(1) This section determines for the purposes of this Chapter whether films are genuinely intended for theatrical release.

(2) The relevant intention is the intention at the time the film is completed of the person then entitled to determine how the film is to be exploited.

(3) "Theatrical release" means exhibition to the paying public at the commercial cinema.

(4) A film is not regarded as genuinely intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by exhibition to the paying public at the commercial cinema.

Chapter 10 Trade profits: certain telecommunication rights

145 Professions and vocations

The provisions of this Chapter apply to professions and vocations as they apply to trades.

146 Meaning of "relevant telecommunication right"

In this Chapter a "relevant telecommunication right" means--

(a) a licence granted under section 1 of the Wireless Telegraphy Act 1949 (c. 54) in accordance with regulations made under section 3 of the Wireless Telegraphy Act 1998 (c. 6) (bidding for licences),

(b) an indefeasible right to use a telecommunications cable system, or

147 Expenditure and receipts treated as revenue in nature

(1) This section applies if, in accordance with generally accepted accounting practice, an amount in respect of--

(a) expenditure on the acquisition of a relevant telecommunication right, or

(b) a receipt from the disposal of a relevant telecommunication right,

is recognised in the accounts of a trade as an item in the calculation of profit or loss.

(2) The amount is treated for income tax purposes as an item of a revenue nature.

(3) "The acquisition of a relevant telecommunication right" includes--

(a) the extension of rights attached to a relevant telecommunication right, and

(b) if a relevant telecommunication right is subject to a derivative right, the cancellation or restriction of rights attached to the derivative right.

(4) "The disposal of a relevant telecommunication right" includes--

(a) the cancellation or restriction of rights attached to a relevant telecommunication right, and

(b) the granting of a derivative right or the extension of rights attached to a derivative right.

148 Credits or debits arising from revaluation

(1) This section applies if, in accordance with generally accepted accounting practice, an amount in respect of the revaluation of a relevant telecommunication right is recognised in the accounts of a trade (whether or not as an item in the calculation of profit or loss).

(2) The amount is treated for income tax purposes as an item of a revenue nature.

(3) In calculating the profits of the trade, the amount is brought into account for the period of account in which it is recognised.

Chapter 11 Trade profits: other specific trades

Dealers in securities etc.

149 Taxation of amounts taken to reserves

(1) This section applies for the purpose of calculating the profits of a person's trade if a profit on the sale of securities would be brought into account in calculating the profits of the trade.

(2) Profits and losses from the securities that in accordance with generally accepted accounting practice are--

(a) calculated by reference to the fair value of the securities, and

(b) recognised in the person's statement of recognised gains and losses or statement of changes in equity,

are brought into account in calculating the profits of the trade.

(3) But subsection (2) does not apply--

(a) to an amount so far as deriving from or otherwise relating to an amount brought into account under that subsection in an earlier period of account, or

(b) to an amount recognised for accounting purposes by way of correction of a fundamental error.

(4) In this section "securities" includes--

(a) shares,

(b) rights of unit holders in unit trust schemes to which TCGA 1992 applies as a result of section 99 of TCGA 1992, and

but does not include a loan relationship (within the meaning of Chapter 2 of Part 4 of FA 1996).

150 Conversion etc. of securities held as circulating capital

(1) This section applies for the purpose of calculating the profits of a trade if--

(a) a transaction falling within subsection (2) occurs in relation to securities ("the original holding"), and

(b) a profit on the sale of the securities would be brought into account in calculating the profits of the trade.

(2) A transaction falls within this subsection if--

(a) it results in a new holding being treated as the same as the original holding as a result of sections 126 to 136 of TCGA 1992 (CGT roll-over relief in cases of conversion etc.), or

(b) it is treated, as a result of section 134 of TCGA 1992 (compensation stock), as an exchange for a new holding which does not involve a disposal of the original holding,

and it does not fall within section 151(1) or 152(1) below (exchanges of gilts for gilt strips and consolidation of gilt strips).

(3) This section does not apply to securities in respect of which unrealised profits or losses, calculated by reference to the fair value of the securities at the end of the period of account, are taken into account in the period of account in which the transaction occurs.

(4) The transaction is treated as not involving a disposal of the original holding and the new holding is treated as the same asset as the original holding.

(5) But if, under the transaction, the person carrying on the trade--

(a) receives consideration in addition to the new holding, or

(b) becomes entitled to receive such consideration,

subsection (4) applies as if the references to the original holding were to the proportion of the original holding given by the following fraction.

(6) The fraction is--

---

where--

NH is the market value of the new holding at the time of the transaction, and
C is the market value of the consideration at the time of the transaction or (if the consideration is cash) the amount of the consideration.

(7) In determining whether subsection (2)(a) applies as a result of section 135 or 136 of TCGA 1992, the reference to capital gains tax in section 137(1) of TCGA 1992 is to be read as a reference to income tax.

(8) In this section "securities" includes--

(a) shares,

(b) loan stocks or similar securities (whether secured or unsecured) of a government, a local or other public authority (in the United Kingdom or elsewhere) or a company,

(d) in the case of a company with no share capital, interests in the company possessed by members of the company,

(e) quoted options to subscribe for shares which are treated as shares as a result of section 147 of TCGA 1992, and

(f) earn-out rights which are assumed to be securities as a result of section 138A(3) of TCGA 1992.

151 Exchanges of gilts for gilt strips

(1) This section applies for the purpose of calculating the profits of a trade if--

(a) the person carrying it on ("the trader") exchanges a gilt-edged security for strips of the security, and

(b) a profit on the sale of the security would be brought into account in calculating the profits of the trade.

(2) The security is treated as having been redeemed at the time of the exchange by the payment to the trader of its market value.

(3) The trader is treated as having acquired each strip for the proportion of the market value of the security given by the following fraction.

(4) The fraction is--

---

where--

SV is the market value of one strip, and
TV is the total of the market values of all the strips received in exchange for the security.

(5) In this section references to market value are to market value at the time of the exchange.

(6) This section applies to professions and vocations as it applies to trades.

(7) See also--

section 153 (meaning of "gilt-edged security" and "strip"), and
section 154 (regulations for determining market value of securities or strips).

152 Consolidation of gilt strips

(1) This section applies for the purpose of calculating the profits of a trade if--

(a) strips of a gilt-edged security are consolidated into a single security by being exchanged by the person carrying on the trade ("the trader") for the single security, and

(b) a profit on the sale of any of the strips would be brought into account in calculating the profits of the trade.

(2) Each strip is treated as having been redeemed at the time of the exchange by payment to the trader of its market value.

(3) The trader is treated as having acquired the gilt-edged security for an amount equal to the total of the market values of the strips given in exchange.

(4) In this section references to market value are to market value at the time of the exchange.

(5) This section applies to professions and vocations as it applies to trades.

(6) See also--

section 153 (meaning of "gilt-edged security" and "strip"), and
section 154 (regulations for determining market value of securities or strips).

153 Meaning of "gilt-edged security" and "strip"

(1) In this Act "gilt-edged security" means a security which--

(a) is a gilt-edged security for the purposes of TCGA 1992 (see Schedule 9 to that Act), or

(b) will be such a security on the making of an order under paragraph 1 of Schedule 9 to TCGA 1992, if the making of the order is anticipated in the prospectus under which the security is issued.

(2) For the purposes of sections 151 and 152 "strip", in relation to a gilt-edged security, means a security issued under the National Loans Act 1968 (c. 13) which meets conditions A to C.

(3) Condition A is that the security is issued for the purpose of representing the right to or of securing--

(a) a payment corresponding to a payment of interest or principal remaining to be made under the gilt-edged security, or

(b) two or more payments each corresponding to a payment to be so made.

(4) Condition B is that the security is issued in conjunction with the issue of one or more other securities which, together with that security--

(a) represent the right to, or

(b) secure,

payments corresponding to every payment remaining to be made under the gilt-edged security.

(5) Condition C is that the security is not itself a security which--

(a) represents the right to, or

(b) secures,

payments corresponding to a part of every payment remaining to be made under the gilt-edged security.

154 Regulations for determining market value of securities or strips

(1) The Treasury may by regulations make provision for the purposes of sections 151 and 152 as to the manner of determining the market value at any time of a gilt-edged security (including any strip).

(2) The regulations may--

(a) make different provision for different cases, and

(b) contain such incidental, supplemental, consequential and transitional provision as the Treasury consider appropriate.

(3) The power in this section does not affect the power under section 202(5) of FA 1996 (gilt stripping).

Persons authorised for purposes of FISMA 2000

155 Levies and repayments under FISMA 2000

(1) This section applies for the purpose of calculating the profits of a trade carried on by a person who--

(a) is authorised for the purposes of FISMA 2000 (see section 31(1) of that Act), but

(b) is not an investment company (within the meaning of section 130 of ICTA).

(2) A deduction is allowed for any sum spent by the person in paying a levy, so far as it is not otherwise allowable.

(3) A payment made to the person as a result of a repayment provision is brought into account as a receipt.

(4) For the purposes of this section "levy" means--

(a) a payment required under rules made under section 136(2) of FISMA 2000,

(b) a levy imposed under the Financial Services Compensation Scheme,

(d) a payment required under the rules referred to in paragraph 14(1) of Schedule 17 to FISMA 2000 ("scheme rules") in accordance with paragraph 15(1) of that Schedule, or

(e) a payment required in accordance with the standard terms fixed under paragraph 18 of that Schedule (other than an award which is not an award of costs under rules made under section 230 of FISMA 2000 or under provision relating to costs contained in those standard terms).

(5) For the purposes of this section "repayment provision" means--

(a) any provision made by virtue of section 136(7) or 214(1)(e) of FISMA 2000, or

(b) any provision made by scheme rules for fees to be refunded in specified circumstances.

Dealers in land etc.

156 Purchase or sale of woodlands

(1) This section applies for the purpose of calculating the profits of a trade of dealing in land.

(2) If the person carrying on the trade buys woodlands in the United Kingdom in the course of the trade, the part of the cost of the woodlands which is attributable to trees or saleable underwood growing on the land is ignored.

(3) If--

(a) the woodlands are subsequently sold in the course of the trade, and

(b) any of the trees or underwood are still growing on the land at the time of the sale,

the part of the price that is equal to the amount ignored under subsection (2) for the trees or underwood is ignored.

157 Relief in respect of mineral royalties

(1) This section applies for the purpose of calculating the profits of a trade if in a tax year a person who is UK resident, or ordinarily UK resident, carries on the trade the receipts of which include mineral royalties--

(a) which the person is entitled to receive under a mineral lease or agreement, and

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