Finance Act 2006 (c. 25)

(The document as of February, 2008)

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83LC A claim to which this Part of this Schedule applies must specify the amount of the relief claimed, which must be an amount quantified at the time the claim is made.

Amendment or withdrawal of claim

83LD A claim to which this Part of this Schedule applies may be amended or withdrawn by the claimant company only by amending its company tax return.

Time limit for claims

83LE (1) A claim to which this Part of this Schedule applies may be made, amended or withdrawn at any time up to the first anniversary of the filing date for the company tax return of the claimant company for the accounting period for which the claim is made.

(2) The claim may be made, amended or withdrawn at a later date if an officer of Revenue and Customs allows it. "

Claims for relief under Schedule 13 to FA 2002

7 In paragraph 83M (Part 9C: introduction) for "claims for tax credits" substitute "claims for relief".

8 In paragraph 83R (penalty), in sub-paragraph (1)(a) for "a claim to which this Part of this Schedule applies" substitute "a claim for a tax credit under Schedule 13 to the Finance Act 2002".

9 In the title of Part 9C, "tax credit" becomes "relief".

Commencement and transitional provision

10 The amendments made by paragraphs 2 to 9 have effect in relation to accounting periods ending on or after 31st March 2006.

11 (1) This paragraph applies where a company is entitled to relief under Schedule 20 to FA 2000 or Schedule 12 or 13 to FA 2002 for any accounting period of the company falling within sub-paragraph (2).

(2) An accounting period of a company falls within this sub-paragraph if it ends on a day falling after 31st March 2002 but before 31st March 2006.

(3) Sub-paragraphs (4) and (5) apply to any claim by the company for such relief for an accounting period falling within sub-paragraph (2), other than a claim by the company for--

(a) an R&D tax credit under Schedule 20 to FA 2000, or

(b) a tax credit under Schedule 13 to FA 2002.

(4) A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at any time up to and including 31st March 2008.

(5) A claim to which this sub-paragraph applies may be made, amended or withdrawn by the company at a later date if an officer of Revenue and Customs allows it.

Section 37

SCHEDULE 4 Taxation of activities of film production company

Films to which this Schedule applies

1 The provisions of this Schedule apply in relation to films that commence principal photography on or after 1st April 2006.

Activities treated as separate trade

2 The activities of the film production company in relation to such a film are treated as a trade separate from any other activities of the company (and from any activities in relation to any other film).

When the trade begins

3 The film production company is treated as starting to carry on the trade--

(a) when pre-production of the film begins, or

(b) if earlier, when any income from the film is received by the company.

Pre-trading expenditure

4 (1) Where a company incurs expenditure on development of a film and subsequently begins to carry on a trade as the film production company in relation to the film, the expenditure may be treated as expenditure of that trade and as if incurred immediately after the company began to carry it on.

(2) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.

(3) Any amendment or assessment necessary to give effect to sub-paragraph (2) may be made notwithstanding any limitation on the time within which an amendment or assessment may normally be made.

Costs of the film

5 (1) References in this Schedule to the costs of the film are to expenditure incurred by the company on--

(a) film-making activities in connection with the film, or

(b) activities with a view to exploiting the film.

(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 provision) would be regarded as of a capital nature by reason only of being incurred on the creation of an asset (the film) is treated as being of a revenue nature.

Income from the film

6 (1) References in this Schedule to income from the film are to any receipts by the company in connection with the making or exploitation of the film.

(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);

(d) receipts by the company by way of a profit share agreement.

(3) Receipts that (apart from this provision) would be regarded as of a capital nature are treated as being of a revenue nature.

Calculation of profit or loss

7 (1) For the first period of account there shall be brought into account in determining profit or loss--

(a) as a debit, the costs of the film incurred (and represented in work done) 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.

(2) For any period of account after the first there shall be brought into account in determining profit or loss--

(a) as a debit, the difference between the amount of the costs of the film 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.

(3) The proportion of estimated total income treated as earned at the end of any period of account is determined using the formula:

---

where--

C is the total to date of costs incurred (and reflected in work done),
T is the estimated total cost of the film, and
I is the estimated total income from the film.

Estimates

8 Estimates for the purposes of this Schedule must be made as at the balance sheet date for each period of account, on a fair and reasonable basis taking into consideration all relevant circumstances.

When costs are taken to be incurred

9 (1) For the purposes of this Schedule costs are incurred when they are represented in the state of completion of the work in progress.

(2) Accordingly--

(a) payments in advance for 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 a film shall be taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.

(4) Where 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.

Exclusion of expenditure relieved under other provisions

10 Expenditure in respect of which relief has been given under--

(a) section 40B, 41 or 42 of F(No.2)A 1992,

(b) section 48 of F(No.2)A 1997, or

shall not be taken into account for the purposes of this Schedule.

Section 42

SCHEDULE 5 Film tax relief: further provisions

Part 1 Entitlement to film tax relief

Introduction

1 (1) Film tax relief is available in accordance with this Schedule in respect of expenditure on a film--

(a) that qualifies for the relief (see section 38), and

(b) that commences principal photography on or after 1st April 2006.

(2) References in this Part of this Schedule to the trade of a film production company are to the trade that it is treated as carrying on under Schedule 4.

Additional deduction in computing profits of trade

2 The film production company may (on making a claim) make an additional deduction in calculating the profit or loss of its trade in respect of qualifying expenditure on the film.

Qualifying expenditure

3 (1) Qualifying expenditure for this purpose means core expenditure on the film that falls to be taken into account under Schedule 4 in calculating the profit or loss of the trade for tax purposes.

(2) The Treasury may by regulations--

(a) amend sub-paragraph (1);

(b) provide that expenditure of a specified description is or is not to be regarded for the purposes of this Part of this Schedule as qualifying expenditure.

(3) No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

Amount of additional deduction

4 (1) For the first period of account during which the trade is carried on the amount of the additional deduction is given by--

E × R

where--

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 paragraph 5).

(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 expenditure, or
- (b) if less, 80% of the total amount of qualifying expenditure incurred to date,
R is the rate of enhancement (see paragraph 5), and
P is the amount of the additional deduction given in the previous period or, as the case may be, the aggregate amount of the additional deductions given in previous periods.

(3) The Treasury may by regulations amend the percentage stated in sub-paragraph (1) or (2).

(4) No such regulations shall be made unless a draft of the regulations has been laid before and approved by a resolution of the House of Commons.

Rate of enhancement

5 The rate of enhancement is--

(a) for a limited-budget film, 100%;

(b) for a film other than a limited-budget film, 80%.

Film tax credits

6 (1) A film production company may claim a film tax credit for an accounting period in which it has a surrenderable loss.

(2) The amount of the company's surrenderable loss in any period is equal to whichever is the less of--

(a) the amount of its trading loss for that period, and

(b) the available qualifying expenditure.

(3) For the first period of account during which the trade is carried on, the available qualifying expenditure is the amount that is E for that period for the purposes of paragraph 4(1).

(4) For any period of account after the first, the available qualifying expenditure is given by--

E - S

where--

E is the amount that is E for that period for the purposes of paragraph 4(2), and
S is the amount surrendered in the previous period, or (as the case may be) the aggregate amount of the amounts surrendered in previous periods, under paragraph 7.

Amount of credit

7 (1) The company may surrender the whole or part of its surrenderable loss in a period.

(2) The amount of the film tax credit to which a company is entitled for a period is given by the formula--

L × R

where--

L is the amount of the loss surrendered, and
R is the payable credit rate (see paragraph 8).

Payable credit rate

8 The payable credit rate is--

(a) for a limited-budget film, 25%;

(b) for a film other than a limited-budget film, 20%.

Payment in respect of film tax credit

9 (1) Where--

(a) a company is entitled to a film tax credit for a period, and

(b) makes a claim,

the Commissioners shall 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 tax.

To the extent that it is so applied the Commissioners' liability under sub-paragraph (1) is discharged.

(3) Where 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 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 think fit.

(4) No payment need be made in respect of a film tax credit for an accounting 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 555 of ICTA (foreign entertainers), or

Payment in respect of film tax credit not income

10 A payment in respect of film tax credit is not income of the company for any tax purpose.

Trading loss reduced by amount surrendered for film tax credit

11 The amount of a film production company's trading loss for an accounting period is reduced by any amount surrendered for a film tax credit.

No account to be taken of amounts if unpaid

12 (1) In determining for the purposes of this Part of this Schedule the amount of costs incurred on a film at the end of a period of account no account is to be taken of any amount that has not been paid four months after the end of that period.

(2) This is without prejudice to the operation of paragraph 9 of Schedule 4 (general rules as to when costs are taken to be incurred).

Artificially inflated claims for deduction or film tax credit

13 (1) To the extent that a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it shall be disregarded in determining for any period--

(a) any additional deduction to which a company is entitled under this Part of this Schedule, and

(b) any film tax credit to which a company is entitled.

(2) Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain--

(a) an additional deduction under this Part of this Schedule to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled, or

(b) a film tax credit to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled.

(3) In this paragraph "arrangements" includes any scheme, agreement or understanding, whether or not legally enforceable.

Interpretation

14 In this Part of this Schedule--

"the Commissioners" means Her Majesty's Commissioners for Revenue and Customs;
"national insurance contributions" means contributions under Part 1 of the Social Security Contributions and Benefits Act 1992 (c. 4) or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7); and
"PAYE regulations" means regulations under section 203 of ICTA.

Part 2 Certification of British films for purposes of film tax relief

15 For section 6 of the Films Act 1985 (c. 21) (certification of master negatives, tapes and discs for purposes of section 72 of FA 1982) substitute)--

" 6 Certification of British films

Schedule 1 to this Act has effect with respect to the certification by the Secretary of State of a film as a British film for the purposes of film tax relief. " .

16 For the heading to Schedule 1 to that Act substitute "Certification of British films for purposes of film tax relief".

17 For paragraph 1 of that Schedule substitute--

" Preliminary

1 (1) In this Schedule--

"film" includes any record, however made, of a sequence of visual images that is capable of being used as a means of showing that sequence as a moving picture;
"film production company" has the same meaning as in Chapter 3 of Part 3 of the Finance Act 2006 (see section 32 of that Act).

(2) For the purposes of this Schedule each part of a series of films is treated as a separate film, unless--

(a) the films form a series with not more than 26 parts,

(b) the combined playing time is not more than 26 hours, and

in which case the films are treated as a single film.

(3) References in this Schedule to a film include the film soundtrack.

(4) For the purposes of this Schedule a film is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public. " .

18 For paragraph 2 of that Schedule substitute--

" Applications for certification

2 (1) The film production company may apply to the Secretary of State for the certification of a film as a British film.

(2) The application may be for an interim or final certificate.

(3) An interim certificate is a certificate granted before the film is completed that the film, if completed in accordance with the proposals set out in the application, will be a British film.

(4) A final certificate is a certificate granted after the film is completed that the film is a British film.

(5) The applicant must--

(a) produce to the Secretary of State such books or other documents relating to the application, and

(b) provide the Secretary of State with such other information with respect to it,

as the Secretary of State may require for the purposes of determining the application.

(6) The Secretary of State may require information provided for the purposes of the application to be accompanied by a statutory declaration, by the person providing it, as to the truth of the information. " .

19 For paragraph 3 of that Schedule substitute--

" Certification and withdrawal of certification

3 (1) If the Secretary of State is satisfied that the requirements are met for interim or final certification of a film as a British film, he shall certify the film accordingly.

(2) If the Secretary of State is not satisfied that those requirements are met, he shall refuse the application.

(3) An interim certificate--

(a) may be given subject to conditions, and (unless the Secretary of State directs otherwise) is of no effect if the conditions are not met;

(b) may be expressed to expire after a specified period, and (unless the Secretary of State directs otherwise) ceases to have effect at the end of that period; and

(4) If it appears to the Secretary of State that a film certified by him under this Schedule ought not to have been certified, he shall revoke its certification.

Unless the Secretary of State directs otherwise, a certificate that is revoked is treated as never having had effect. " .

20 In paragraph 4 of that Schedule (British films for purposes of the Schedule), for sub-paragraphs (1) to (3) substitute--

" (1) A film is a British film for the purposes of this Schedule if it passes the relevant cultural test (see paragraph 4A, 4B or 4C). " .

21 (1) Paragraph 5 of that Schedule (excluded films) is amended as follows.

(2) For sub-paragraph (1) substitute--

" (1) A film must not be certified as a British film for the purposes of this Schedule if parts of the film whose playing time exceeds 10% of the total playing time of the film are derived from a previous film, unless--

(a) the two films have the same film production company or producer, and

(b) the previous film has not been certified under this Schedule. " .

(3) After sub-paragraph (2) insert--

" (3) For the purposes of this paragraph--

(a) the film soundtrack shall be left out of account;

(b) "producer" means the person by whom the arrangements necessary for the making of the film are undertaken;

(c) in relation to certification before the commencement of Chapter 3 of Part 3 of the Finance Act 2006, references to certification of a film shall be read as references to certification of the master negative, tape or disc of the film. " .

22 In paragraph 9 of that Schedule (determination of disputes) for the words from "any decision of the Secretary of State" to "may" substitute "any decision of the Secretary of State under paragraph 3 may".

23 In paragraph 10 of that Schedule (regulations and orders)--

(a) in sub-paragraph (1)(c), for "2(4)" substitute "2(6);

(b) in sub-paragraph (2), for "4 to 8" substitute "4 to 5".

Confidentiality of information

24 (1) Section 18(1) of the Commissioners for Revenue and Customs Act 2005 (c. 11) (restriction on disclosure by Revenue and Customs officials) does not prevent disclosure to the Secretary of State for the purposes of his functions under Schedule 1 to the Films Act 1985 (c. 21) (certification of films as British films for the purposes of film tax relief).

(2) Information so disclosed may be disclosed to the UK Film Council.

(3) A person to whom information is disclosed under sub-paragraph (1) or (2) may not otherwise disclose it except--

(a) for the purposes of the Secretary of State's functions under Schedule 1 to the Films Act 1985 (c. 21),

(b) if the disclosure is authorised by an enactment,

(d) for the purposes of a criminal investigation or legal proceedings (whether civil or criminal) connected with the operation of that Schedule or this Chapter,

(e) with the consent of the Commissioners for Her Majesty's Revenue and Customs, or

(f) with the consent of each person to whom the information relates.

(4) The references in this paragraph to the functions of the Secretary of State under Schedule 1 to the Films Act 1985 do not include those functions in so far as they are exercised in relation to a film that commenced principal photography before 1st April 2006.

Wrongful disclosure

25 (1) A person commits an offence if--

(a) he discloses information about a person in contravention of paragraph 24(3), and

(b) the person's identity is specified in the disclosure, or can be deduced from it.

(2) In sub-paragraph (1) "information about a person" means revenue and customs information relating to a person within the meaning of section 19(1) of the Commissioners for Revenue and Customs Act 2005 (c. 11) (wrongful disclosure).

(3) It is a defence for a person charged with an offence under this paragraph to prove that he reasonably believed--

(a) that the disclosure was lawful, or

(b) that the information had already and lawfully been made available to the public.

(4) A person guilty of an offence under this paragraph is liable--

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine or both, or

(b) on summary conviction, to imprisonment for a term not exceeding twelve months or a fine not exceeding the statutory maximum or both.

(5) A prosecution for an offence under this paragraph may be brought in England and Wales only--

(a) by the Director of Revenue and Customs Prosecutions, or

(b) with the consent of the Director of Public Prosecutions.

(6) A prosecution for an offence under this paragraph may be brought in Northern Ireland only--

(a) by the Commissioners for Her Majesty's Revenue and Customs, or

(b) with the consent of the Director of Public Prosecutions for Northern Ireland.

(7) In the application of this paragraph--

(a) in England and Wales, in relation to an offence committed before the commencement of section 282 of the Criminal Justice Act 2003 (c. 44), or

(b) in Scotland or Northern Ireland,

the reference in sub-paragraph (4)(b) to twelve months shall be read as a reference to six months.

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