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

Part 2 U.K. Trading income

Chapter 9 U.K. Trade profits: films and sound recordings

Introduction U.K.

130 Expenditure to which this Chapter applies U.K.

(1) This Chapter makes provision about—

(a) expenditure incurred on the production or acquisition of the original master version of a film or sound recording, and

(b) preliminary expenditure in relation to a film.

(2) In this Chapter references to production expenditure are to expenditure incurred on the production of the original master version of a film or sound recording.

(3) In this Chapter references to acquisition expenditure are to expenditure incurred on the acquisition of the original master version of a film or sound recording.

(4) In this Chapter references to the original master version of a film or sound recording include any rights in the original master version of a film or sound recording that are held or acquired with it.

(5) In this Chapter references to production or acquisition expenditure do not include—

(a) interest (as to which, see section 29), or

(b) the incidental costs of obtaining finance (as to which, see sections 58 and 59).

(6) In this Chapter “preliminary expenditure”, in relation to a film, means expenditure which—

(a) can reasonably be said to have been incurred with a view to enabling a decision to be taken as to whether to make the film,

(b) is payable before the first day of principal photography (if the decision is to make the film), and

(c) is not repayable under a contract or other arrangement if the film is not made.

(7) In this Chapter “any prohibitive rule” means any provision of the Income Tax Acts which—

(a) prohibits a deduction from being made, or

(b) restricts the extent to which it is allowed,

in calculating the profits of a trade.

131 Meaning of “film” and related expressions U.K.

(1) In this Chapter “film” includes any record, however made, of a sequence of visual images which is capable of being used as a means of showing that sequence as a moving picture.

(2) For the purposes of this Chapter each part of a series of films is treated as a separate film.

(3) But if the Secretary of State has given a direction under paragraph 1(4) of Schedule 1 to the Films Act 1985 (c. 21) that parts of a series of films are to be treated as a single film for the purposes of that Schedule, they are also treated as a single film for the purposes of this Chapter.

(4) In this Chapter references to a film include the film soundtrack (if any).

(5) For the purposes of this Chapter 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.

132 Meaning of “original master version” and “certified master version” U.K.

(1) In this Chapter “original master version” means—

(a) in relation to a film, the original master negative, tape or disc, and

(b) in relation to a sound recording, the original master audio tape or disc.

(2) In this Chapter references to the original master version of a film include the original master version of the film soundtrack (if any).

(3) In this Chapter “certified master version”, in relation to a film, means an original master negative, tape or disc which is certified under paragraph 3 of Schedule 1 to the Films Act 1985 as a qualifying film, tape or disc for the purposes of this Chapter.

133 Meaning of “relevant period” U.K.

In this Chapter “relevant period”, in relation to a trade, means—

(a) a period of account of the trade, or

(b) if no accounts of the trade are drawn up for a period, the basis period for a tax year.

Expenditure treated as revenue in nature U.K.

134 Expenditure treated as revenue in nature U.K.

(1) If a person carrying on a trade incurs production or acquisition expenditure, the expenditure is treated for income tax purposes as expenditure of a revenue nature.

(2) If expenditure is treated under this section as revenue in nature, sums received by the person carrying on the trade from the disposal of the original master version—

(a) are treated for income tax purposes as receipts of a revenue nature, and

(b) are brought into account in calculating the profits of the trade of the relevant period in which they are received.

(3) For this purpose sums received from the disposal of the original master version include—

(a) sums received from the disposal of any interest or right in or over the original master version (including an interest or right created by the disposal), and

(b) insurance, compensation or similar money derived from the original master version.

(4) This section does not apply if an election under section 143 below or section 40D of F(No.2)A 1992 (corresponding corporation tax provision) has effect in relation to the expenditure.

Films and sound recordings: normal rules for allocating expenditure U.K.

135 Films and sound recordings: production or acquisition expenditure U.K.

(1) This section applies for the purpose of calculating the profits of a trade of a relevant period if—

(a) the trade consists of or includes the exploitation of the original master versions of films or sound recordings,

(b) the original master versions do not constitute trading stock of the trade (within the meaning of section 174),

(c) the person carrying on the trade incurs production or acquisition expenditure in, or before, the relevant period, and

(d) no election under section 143 below or section 40D of F(No.2)A 1992 has effect in relation to the expenditure.

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

(3) The person carrying on the trade must allocate to the relevant period so much of the expenditure as is just and reasonable (but see subsection (5)).

(4) In making this allocation regard must be had to the following—

(a) the amount of the expenditure which remains unallocated at the beginning of the period,

(b) the amount of the expenditure incurred in the period,

(c) the proportion which the estimated value of the original master version realised in the period (by way of income or otherwise) bears to the sum of the value so realised and the estimated remaining value at the end of the period, and

(d) the need to bring the whole of the expenditure into account over the time during which the value of the original master version is expected to be realised.

(5) The person carrying on the trade may also allocate to the relevant period a further amount, so long as the total amount allocated to the period does not exceed the value of the original master version realised in the period (by way of income or otherwise).

(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 40B of F(No.2)A 1992 (corporation tax provision corresponding to this section) to any other relevant period, or

(d) under section 41 of that Act (corporation tax provision corresponding to section 137 below) or 42 of that Act (corporation tax provision corresponding to sections 138 to 140 below) to the relevant period or any other relevant period.

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

(a) under any other provision of this Chapter, or

(b) under section 41 or 42 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: special rules for allocating expenditure U.K.

136 Application of provisions about certified master versions U.K.

• Sections 137 to 140 (certified master versions: certain expenditure) apply for the purpose of calculating the profits of a trade of a relevant period if—

  (a)

  the trade consists of or includes the exploitation of films,

  (b)

  the films do not constitute trading stock of the trade (within the meaning of section 174),

  (c)

  the expenditure in question is of a revenue nature (whether as a result of section 134 or otherwise), and

  (d)

  no election under section 143 below or section 40D of F(No.2)A 1992 has effect in relation to the expenditure.

137 Certified master versions: preliminary expenditure U.K.

(1) This section applies if—

(a) the person carrying on the trade has incurred preliminary expenditure in connection with a film in, or before, the relevant period,

(b) the certified master version condition is met (see subsection (2)), and

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

(2) The certified master version condition is—

(a) if the film is completed, that the original master version of it is a certified master version, or

(b) if the film is not completed, that it is reasonably likely that, if the film were completed, the original master version of it would be a certified master version.

(3) A deduction is allowed for the amount of the preliminary 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 preliminary expenditure to the relevant period.

(5) But the total amount allocated under this section must not exceed 20% of the budgeted total expenditure on the film, calculated as at the first day of principal photography.

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

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

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

(c) it is allocated under section 41 of F(No.2)A 1992 to any other relevant period,

(d) it is allocated under section 40B or 42 of that Act to the relevant period or any other relevant period, or

(e) a deduction in respect of it has otherwise been made in calculating the profits of the trade for income or corporation tax purposes.

(7) If any preliminary expenditure in connection with the film is allocated to the relevant period—

(a) under section 135 above, or

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

no other preliminary expenditure in connection with the film may be allocated to the relevant period under this section.

(8) So far as a deduction is given in respect of any expenditure—

(a) under this section, or

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

no further deduction is allowed in respect of that expenditure in calculating the profits of the trade for income tax purposes.

138 Certified master versions: production or acquisition expenditure U.K.

(1) This section applies if—

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

(b) the film was completed in, or before, that period,

(c) the original master version is a certified master version, and

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

(2) A deduction is allowed for the amount of the 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 the permissible amount of the expenditure to the relevant period.

(4) The permissible amount of the expenditure is the smallest amount given by the following calculations.

(5) The calculations are—

Calculation 1

Calculate one-third of the total production or acquisition expenditure incurred by the person in respect of the original master version (“the total expenditure”).

Calculation 2

Calculate one-third of the sum obtained by deducting from the total expenditure—

(a)  any amount of the total expenditure already allocated under section 137,

(b)  any amount of the total expenditure already allocated under section 41 of F(No.2)A 1992, and

(c)  any amount of the total expenditure that has already been, or is capable of being, allocated under section 139 or 140 below or under section 42 of F(No.2)A 1992 as applied by section 48(1) to (3) of F(No.2)A 1997 (corresponding corporation tax provision).

Calculation 3

Calculate so much of the total expenditure as has not already been allocated to the relevant period or any other relevant period—

(a)  under this section or any other provision of this Chapter, or

(b)  under any of sections 40B, 41 or 42 of F(No.2)A 1992.

(6) If the relevant period is less than 12 months the above references to one-third are to be read as references to a proportionately smaller fraction.

(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.

Valid from 07/04/2005

[F1 138A Certified master versions: acquisition expenditure U.K.

(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,

[F2 (aa) section 140 does not apply in relation to that film,]

(b) the original master version has not previously been acquired by that person,

(c) the film was completed in, or before, that period,

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

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

(f) there has not already been a disqualifying deduction in respect of expenditure relating to the film (see section 140A).

(2) A deduction is allowed for the amount of the 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 the permissible amount of the expenditure to the relevant period.

[F3 (3A) But the total amount allocated under this section may not exceed the total production expenditure in respect of the original master version.]

(4) The permissible amount of the expenditure is the smallest amount given by the following calculations.

(5) The calculations are—

Calculation 1

Calculate one-third of the total acquisition expenditure incurred by the person in respect of the original master version (“the total expenditure”).

F4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Calculation 3

Calculate so much of the total expenditure as has not already been allocated to the relevant period or any other relevant period—

(a) under this section or any other provision of this Chapter, or

(b) under any of sections 40B or 42 of F(No.2)A 1992.

(6) If the relevant period is less than 12 months the above references to one-third are to be read as references to a proportionately smaller fraction.

[F5 (6A) Where the total acquisition expenditure incurred by the person in respect of the original master version exceeds the total production expenditure in respect of the original master version, the calculations in subsection (5) have effect as if that total acquisition expenditure were an amount equal to that total production expenditure.]

(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.]

Textual Amendments

F1 Ss.138, 138A substituted for s. 138 (with effect as mentioned in Sch. 3 para. 3(2)(3) of the amending Act) by Finance Act 2005 (c. 7), s. 59, Sch. 3 para. 3(1)(4)

F2 S.138A(1)(aa) inserted (with effect as mentioned in Sch. 3 para. 12(6)-(8) of the amending Act) by Finance Act 2005 (c. 7), s. 59, Sch. 3 para. 12(2)

F3 S.138A(3A) inserted (with effect as mentioned in Sch. 3 para. 12(6)(7)(9) of the amending Act) by Finance Act 2005 (c. 7), s. 59, Sch. 3 para. 12(3)

F4 Words in s.138A(5) repealed (with effect as mentioned in Sch. 3 para. 12(6)-(8) of the amending Act) by Finance Act 2005 (c. 7), ss. 59, 104, Sch. 3 para. 12(4), Sch. 11 Pt. 2(3)

F5 S.138A(6A) inserted (with effect as mentioned in Sch. 3 para. 12(6)(7)(9) of the amending Act) by Finance Act 2005 (c. 7), s. 59, Sch. 3 para. 12(5)

Certified master versions: limited-budget films U.K.

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

(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),

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

(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 U.K.

(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)),

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

(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” U.K.

(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 U.K.

(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.

Valid from 07/04/2005

[F6 Interpretation of sections 138 to 140 U.K.

Textual Amendments

F6 S. 140A and preceding cross-heading inserted (with effect as mentioned in Sch. 3 para. 6(2)-(4) of the amending Act) by Finance Act 2005 (c. 7), Sch. 3 para. 6(1)

[F7 140A “Disqualifying deduction”] U.K.

(1) For the purposes of sections 138 and 139 a disqualifying deduction in respect of expenditure relating to the film occurs when—

(a) under sections 138, 138A or 140 a deduction is made in respect of acquisition expenditure in respect of the original master version of the film in calculating the profits of the trade of any relevant period,

(b) a claim under section 42 of F(No.2)A 1992 is made in relation to the trade, for any relevant period, in respect of expenditure incurred on the acquisition of that version,

(c) under any of sections 138 to 140 a deduction is made in respect of production or acquisition expenditure in respect of that version in calculating the profits of another trade or business of any relevant period, or

(d) a claim under section 42 of F(No.2)A 1992 is made in relation to another trade or business, for any relevant period, in respect of expenditure incurred on the production or acquisition of that version.

(2) For the purposes of sections 138A and 140 a disqualifying deduction in respect of expenditure relating to the film occurs when—

(a) under section 138 or 139 a deduction is made in respect of production expenditure in respect of the original master version of the film in calculating the profits of the trade of any relevant period,

(b) a claim under section 42 of F(No.2)A 1992 is made in relation to the trade, for any relevant period, in respect of expenditure incurred on the production of that version,

(c) under any of sections 138 to 140 a deduction is made in respect of production or acquisition expenditure in respect of that version in calculating the profits of another trade or business of any relevant period, or

(d) a claim under section 42 of F(No.2)A 1992 is made in relation to another trade or business, for any relevant period, in respect of expenditure incurred on the production or acquisition of that version.

(3) For the purposes of subsections (1) and (2)—

(a) it does not matter whether a claim under section 42 of F(No.2)A 1992 was made before, or on or after, 2nd December 2004, and

(b) references to a relevant period in relation to such a claim are to a relevant period within the meaning of section 40B of that Act.

(4) Where more than one deduction is made at the same time, the Inland Revenue may determine which of those deductions is to be regarded as made first for the purposes of determining, for the purposes of sections 138 to 140, whether a disqualifying deduction has already been made.

(5) In subsection (4) references to a deduction are to be read as including references to a claim under section 42 of F(No.2)A 1992.]

Textual Amendments

F7 S. 140A and preceding cross-heading inserted (with effect as mentioned in Sch. 3 para. 6(2)-(4) of the amending Act) by Finance Act 2005 (c. 7), Sch. 3 para. 6(1)

Valid from 07/04/2005

[F8 Deferred income agreements U.K.

Textual Amendments

F8 Ss. 142A-142E and preceding cross-heading inserted (with effect as mentioned in s. 65(2) of the amending Act) by Finance Act 2005 (c. 7), s. 65(1)

142A Deferred income agreements which exist when deduction made U.K.

(1) This section applies where—

(a) in calculating the profits of a relevant period of a trade carried on by a person (“P”), a deduction is made under any of sections 138 to 140 in respect of expenditure relating to a film (“the relevant expenditure”), and

(b) when the deduction is made, one or more deferred income agreements in respect of the film exist to which P is or has been a party and which P entered into on or after 2nd December 2004.

(2) An amount equal to the amount of excess relief is brought into account as a receipt in calculating the profits of the trade of the relevant period in respect of which the deduction was made.

(3) If, at the time immediately after the end of the 15 year period, P is carrying on the trade, P is to be treated for the purposes of section 135 (normal rules for allocating expenditure to periods) as incurring at that time relevant film expenditure of an amount equal to the amount of excess relief.

(4) The “amount of excess relief” is the amount given by the following formula—

where—

D is the amount of the deduction allowed;

T1 is the number of days in the 15 year period;

T2 is the number of days in the period which begins with the operative date and ends with the final deferral date.

(5) The “15 year period” means the period of 15 years which begins with the operative date.

(6) The “operative date” means—

(a) where the relevant expenditure is acquisition expenditure only, the date of the acquisition in question, and

(b) in any other case, the date upon which the film is completed.

(7) The “final deferral date” means—

(a) the last date of deferral in relation to the deferred income agreement mentioned in subsection (1)(b) (see section 142B), or

(b) where there is more than one such agreement, the date which is the latest of the last dates of deferral in relation to those agreements.

(8) “Relevant film expenditure” means production or acquisition expenditure relating to the original master version of the film.

142B Meaning of “deferred income agreement in respect of a film” U.K.

(1) For the purposes of section 142A, a “deferred income agreement in respect of a film” means an agreement which satisfies condition A or condition B.

(2) Condition A is that the agreement (whether or not it supplements or varies another agreement)—

(a) guarantees to any person an amount of income arising from the exploitation of the film, and

(b) has the effect that the last date of deferral is a date after the end of the 15 year period.

(3) Condition B is that the agreement—

(a) supplements or varies another agreement (“the earlier agreement”) which guarantees to any person an amount of income arising from the exploitation of the film, and

(b) has the effect that the last date of deferral is a date which is after the end of the 15 year period and after the last date of deferral (if any) in relation to the earlier agreement.

(4) The “last date of deferral” means the last date upon which an amount of the guaranteed income will or may arise.

(5) It does not matter whether any of the agreements mentioned in subsection (2) or (3) existed before 2nd December 2004.

(6) For the purposes of this section—

(a) “agreement” means an agreement or series of agreements, and

(b) an agreement “guarantees” an amount of income if the agreement, or any part of it, is designed to secure the receipt of that amount (or at least that amount) of income.

142C Deferred income agreements entered into after deduction made U.K.

(1) This section applies where—

(a) on or after 2nd December 2004, a person (“P”) enters into a deferred income agreement in respect of a film in the course of carrying on a trade, and

(b) before P entered into the agreement, event A or event B occurred in relation to the trade in respect of expenditure relating to the film (“the relevant expenditure”).

(2) Event A occurs in relation to a trade in respect of expenditure relating to a film when a deduction is made under any of sections 138 to 140 in respect of that expenditure in calculating the profits of the trade of a relevant period (“the deduction”).

(3) Event B occurs in relation to a trade in respect of expenditure relating to a film when a claim is made under section 42 of F(No.2)A 1992, in relation to the trade, for a deduction for a relevant period in respect of that expenditure (“the claim”).

It does not matter whether the claim is made before, or on or after, 2nd December 2004.

(4) An amount equal to the net excess relief is brought into account as a receipt in calculating the profits of the trade of the relevant period in which P entered into the deferred income agreement.

(5) If, at the time immediately after the end of the 15 year period, P is carrying on the trade, P is to be treated for the purposes of section 135 (normal rules for allocating expenditure to periods) as incurring at that time relevant film expenditure of an amount equal to the net excess relief.

(6) The “15 year period” means the period of 15 years which begins with the operative date.

(7) The “operative date” means—

(a) where the relevant expenditure is acquisition expenditure only, the date of the acquisition in question, and

(b) in any other case, the date upon which the film is completed.

(8) “Deferred income agreement in respect of a film” has the same meaning as it has for the purposes of section 142A.

(9) “Relevant film expenditure” means production or acquisition expenditure relating to the original master version of the film.

142D Meaning of the “net excess relief” U.K.

(1) For the purposes of section 142C the “net excess relief” is the amount of excess relief reduced (but not below nil) by the recovered amount (if any).

(2) The “amount of excess relief” is the amount given by the following formula—

where—

D is—

(a)

in a case where event A has occurred, the amount of the deduction allowed, and

(b)

in a case where event B has occurred, the amount which there was an entitlement to deduct under section 42 of F(No.2)A 1992 by virtue of the claim;

T1 is the number of days in the 15 year period;

T2 is the number of days in the period which begins with the operative date and ends with the final deferral date.

(3) The “final deferral date” means the last date of deferral in relation to the deferred income agreement mentioned in section 142C(1)(a) (see section 142B).

(4) In a case where event A has occurred, the “recovered amount” means the total of—

(a) the amount (if any) treated under section 142A as a receipt of the trade as a result of any application of that section in relation to the deduction as a result of P's entry into any deferred income agreement in respect of the film concerned, and

(b) the total of any amounts treated under section 142C as receipts of the trade as a result of any previous application of that section in relation to the deduction as a result of P's entry into any previous relevant agreements.

(5) In a case where event B has occurred, the “recovered amount” means the total of—

(a) the amount (if any) treated under section 60 of the Finance Act 2005 as a receipt of the trade as a result of any application of that section in relation to the claim as a result of P's entry into any deferred income agreement in respect of the film concerned,

(b) the total of any amounts treated under section 62 of the Finance Act 2005 as receipts of the trade as a result of any application of that section in relation to the claim as a result of P's entry into any previous relevant agreements, and

(c) the total of any amounts treated under section 142C as receipts of the trade as a result of any previous application of that section in relation to the claim as a result of P's entry into any previous relevant agreements.

(6) “Previous relevant agreement” means a deferred income agreement in respect of the film concerned which was entered into by P—

(a) in the case of event A, after the deduction was made and before the entry into the deferred income agreement mentioned in section 142C(1)(a), and

(b) in the case of event B, after the claim was made and before the entry into that deferred income agreement.

142E Sections 142A to 142D: time of entry into an agreement U.K.

(1) For the purposes of sections 142A to 142D a person is not to be regarded as entering into an agreement on or after 2nd December 2004 where the person entered into the agreement in pursuance of an obligation of the person which immediately before that date was an unconditional obligation.

(2) In determining, for the purposes of subsection (1), whether an obligation in pursuance of which a person entered into an agreement was an unconditional obligation immediately before 2nd December 2004, the obligation is not to be regarded as a conditional obligation at that time by reason only that it was contingent on a condition the fulfilment of which was outside the control of the person.]

Election for sections 134 to 140 not to apply U.K.

143 Election for sections 134 to 140 not to apply U.K.

(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,

(c) its value is expected to be realisable over a period of not less than two years, and

(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 U.K.

144 Meaning of “genuinely intended for theatrical release” U.K.

(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.