Saturday, February 14, 2015

Of course you can have a rather shorter tax code. What are you willing to give up?

I see that there is now a discussion about the complexity of our tax code. Yes, it has many thousands of pages. Yes, it is much longer than 'War and Peace'. Yes, parts of it are fearsomely complex. That could be because we live in a complex financial world. Actually, it's mostly because we use the taxation system for social engineering and for the encouragement of certain activities which the State approves of.

So, let's take film tax credit, for example. The principle is easy, we want to encourage the making of films in the United Kingdom. So, you need to have a clause which allows this. That, as they say, is the easy bit...

You then have to specify the qualifying criteria for relief. What qualifies for relief, when does the relief becomes due and how it will be granted - all has to be stated and quantified. You also have to define your terms - what does theatrical release actually mean, what is a British film, what is qualifying expenditure?

You then need to decide what you do in the event that there are losses to be claimed, or how to give relief on a provisional basis. All of this requires more language, cautiously drawn up so as to address potential loopholes, but to include terms the exact definitions of which being somewhat elusive.

And, before you know it, you have this;


Chapter 3
Film tax relief

Introductory

1195 Availability and overview of film tax relief
(1) This Chapter applies for corporation tax purposes to a company that is the film production company in relation to a film.

(2) Relief under this Chapter (“film tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the film—

(a) section 1196 (intended theatrical release),

(b) section 1197 (British film), and

(c) section 1198 (UK expenditure).

(3) Film tax relief is given by way of—

(a) additional deductions (see sections 1199 and 1200), and

(b) film tax credits (see sections 1201 to 1203).
(4) Sections 1204 to 1207 contain provision about unpaid costs, artificially inflated claims and confidentiality of information.

(5) In this Chapter “the separate film trade” means the company's separate trade in relation to the film (see section 1188).

(6) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for film tax relief.

Conditions of relief

1196 Intended theatrical release

(1) The film must be intended for theatrical release.

(2) For this purpose—

(a) “theatrical release” means exhibition to the paying public at the commercial cinema, and

(b) a film is not regarded as intended for theatrical release unless it is intended that a significant proportion of the earnings from the film should be obtained by such exhibition.

(3) Whether this condition is met is determined for each accounting period of the company during which film-making activities are carried on in relation to the film, in accordance with the following rules.

(4) If at the end of an accounting period the film is intended for theatrical release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

(5) If at the end of an accounting period the film is not intended for theatrical release, the condition—

(a) is treated as having been not met throughout that period, and

(b) cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met. 

1197 British film

The film must be certified by the Secretary of State as a British film under Schedule 1 to the Films Act 1985 (c. 21).


1198 UK expenditure

(1) At least 25% of the core expenditure on the film incurred—

(a) in the case of a British film other than a qualifying co-production, by the company, and

(b) in the case of a qualifying co-production, by the co-producers,

must be UK expenditure.

(2) The Treasury may by regulations amend the percentage specified in subsection (1).


Additional deductions

1199 Additional deduction for qualifying expenditure

(1) If film tax relief is available to the company, it may (on making a claim) make an additional deduction in respect of qualifying expenditure on the film.

(2) The deduction is made in calculating the profit or loss of the separate film trade.

(3) In this Chapter “qualifying expenditure” means core expenditure on the film that falls to be taken into account under Chapter 2 in calculating the profit or loss of the separate film trade for tax purposes.

(4) The Treasury may by regulations—

(a) amend subsection (3), and

(b) provide that expenditure of a specified description is or is not to be regarded as qualifying expenditure.

1200 Amount of additional deduction

(1) For the first period of account during which the separate film trade is carried on, the amount of the additional deduction is given by—

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 subsection (3)).

(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 subsection (3)), and

P is the total amount of the additional deductions given for previous periods.

(3) The rate of enhancement is—

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

(b) for any other film, 80%.

(4) The Treasury may by regulations amend the percentage specified in subsection (1) or (2).


Film tax credits

1201 Film tax credit claimable if company has surrenderable loss

(1) If film tax relief is available to the company, it may claim a film tax credit for an accounting period in which it has a surrenderable loss.

(2) The company's surrenderable loss in any period is—

(a) the company's loss for the period in the separate film trade, or

(b) if less, the available qualifying expenditure for the period.

(3) For the first period of account during which the separate film trade is carried on, the available qualifying expenditure is the amount that is E for that period for the purposes of section 1200(1).

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

where—

E is the amount that is E for that period for the purposes of section 1200(2), and

S is the total amount surrendered in previous periods under section 1202(1).

1202 Surrendering of loss and amount of film tax credit

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

(2) If the company surrenders the whole or part of that loss, the amount of the film tax credit to which it is entitled for the accounting period is given by—

where—

L is the amount of the loss surrendered, and

R is the payable credit rate (see subsection (3)).

(3) The payable credit rate is—

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

(b) for any other film, 20%.

(4) The company's loss in the separate film trade for the accounting period is reduced by the amount surrendered.


1203 Payment in respect of film tax credit

(1) If the company—

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

(b) makes a claim,

the Commissioners for Her Majesty's Revenue and Customs (“the Commissioners”) must 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 subsection (1) is discharged.

(3) If 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 consider appropriate.

(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 966 of ITA 2007 (visiting performers), or

(c) in respect of Class 1 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).

(5) A payment in respect of a film tax credit is not income of the company for any tax purpose.


Miscellaneous

1204 No account to be taken of amount if unpaid

(1) In determining for the purposes of this Chapter the amount of costs incurred on a film at the end of a period of account, ignore any amount that has not been paid 4 months after the end of that period.

(2) This is without prejudice to the operation of section 1192.


1205 Artificially inflated claims for additional deduction or film tax credit

(1) So far as a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be ignored in determining for any period—

(a) any additional deduction which a company may make under this Chapter, and

(b) any film tax credit to be given to a company.

(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 Chapter 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) “Arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.


1206 Confidentiality of information

(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 the Secretary of State's 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 subsection (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,

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

(c) in pursuance of an order of a court,

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

(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.

1207 Wrongful disclosure

(1) A person (“X”) commits an offence if—

(a) X discloses revenue and customs information relating to a person (as defined in section 19(2) of the Commissioners for Revenue and Customs Act 2005 (c. 11)),

(b) the identity of the person to whom the information relates is specified in the disclosure or can be deduced from it, and

(c) the disclosure contravenes section 1206(3) above.

(2) If a person (“Y”) is charged with an offence under subsection (1), it is a defence for Y to prove that Y reasonably believed—

(a) that the disclosure was lawful, or

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

(3) A person guilty of an offence under subsection (1) 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 12 months or a fine not exceeding the statutory maximum or both.

(4) A prosecution for an offence under subsection (1) 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.

(5) A prosecution for an offence under subsection (1) 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.

(6)In the application of this section—

(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 Northern Ireland,

the reference in subsection (3)(b) to 12 months is to be read as a reference to 6 months.



Chapter 4
Film losses

1208 Application of sections 1209 and 1210

(1) Sections 1209 and 1210 apply to a company that is the film production company in relation to a film.

(2) In those sections—

“the completion period” means the accounting period of the company— 

(a) in which the film is completed, or

(b) if the company does not complete the film, in which it abandons film-making activities in relation to the film, 

“loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax, 

“pre-completion period” means an accounting period of the company before the completion period, and 

“the separate film trade” means the company's separate trade in relation to the film (see section 1188). 


1209 Restriction on use of losses while film in production

(1) This section applies if in a pre-completion period a loss is made in the separate film trade.

(2) The loss is not available for loss relief except to the extent that it may be carried forward under section 393(1) of ICTA to be set against profits of the separate film trade in a subsequent period.


1210 Use of losses in later periods

(1) This section applies to the following accounting periods of the company (“relevant later periods”)—

(a) the completion period, and

(b) any subsequent accounting period during which the separate film trade continues.

(2) Subsection (3) applies if a loss made in the separate film trade is carried forward under section 393(1) of ICTA from a pre-completion period to a relevant later period.

(3) So much (if any) of the loss as is not attributable to film tax relief (see subsection (6)) may be treated for the purposes of loss relief as if it were a loss made in the period to which it is carried forward.

(4) Subsection (5) applies if in a relevant later period a loss is made in the separate film trade.

(5) The amount of the loss that may be—

(a) set against other profits of the same or an earlier period under section 393A of ICTA, or

(b) surrendered as group relief under section 403 of that Act,

is restricted to the amount (if any) that is not attributable to film tax relief (see subsection (6)). 

(6) The amount of a loss in any period that is attributable to film tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Chapter 3 in that or any earlier period.

(7) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 1211.


1211 Terminal losses

(1) This section applies if—

(a) a company (“company A”) is the film production company in relation to a qualifying film,

(b) company A ceases to carry on its separate trade in relation to that film (“trade X”) (see section 1188), and

(c) if company A had not ceased to carry on trade X, it could have carried forward an amount under section 393(1) of ICTA to be set against profits of trade X in a later period (“the terminal loss”).

(2) If on cessation of trade X company A—

(a) is the film production company in relation to another qualifying film, and

(b) is carrying on its separate trade in relation to that film (“trade Y”),

it may (on making a claim) make an election under subsection (3). 

(3) The election is to have the terminal loss (or a part of it) treated as if it were a loss brought forward under section 393(1) of ICTA to be set against the profits of trade Y of the first accounting period beginning after the cessation and so on.

(4) Subsection (5) applies if on cessation of trade X—

(a) there is another company (“company B”) that is the film production company in relation to a qualifying film,

(b) company B is carrying on its separate trade in relation to that film (“trade Z”), and

(c) company B is in the same group as company A for the purposes of Chapter 4 of Part 10 of ICTA (group relief).

(5) Company A may surrender the terminal loss (or a part of it) to company B.

(6) On the making of a claim by company B the amount surrendered is treated as if it were a loss brought forward by company B under section 393(1) of ICTA to be set against the profits of trade Z of the first accounting period beginning after the cessation and so on.

(7) The Treasury may, in relation to the surrender of a loss under subsection (5) and the resulting claim under subsection (6), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief).

(8) “Qualifying film” means a film in relation to which the conditions for film tax relief are met (see section 1195(2)).


1212 Introduction

(1) In this Chapter—

“the company” means the film production company in relation to a film, 

“the completion period” means the accounting period of the company— 

(a) in which the film is completed, or 

(b) if the company does not complete the film, in which it abandons film-making activities in relation to it, 

“interim accounting period” means any earlier accounting period of the company during which film-making activities are carried on in relation to the film, 

“interim certificate” and “final certificate” refer to certificates under Schedule 1 to the Films Act 1985 (c. 21) (certification of films as British films for purposes of film tax relief), 

“the separate film trade” means the company's separate trade in relation to the film (see section 1188), and 

“special film relief” means— 

(a) film tax relief, or 

(b) relief under section 1211 (transfer of terminal losses from one qualifying film to another). 

(2) The company's company tax return for the completion period must state that the film has been completed or that the company has abandoned film-making activities in relation to it (as the case may be).


1213 Certification as a British film

(1) The company is not entitled to special film relief for an interim accounting period unless its company tax return for the period is accompanied by an interim certificate.

(2) If an interim certificate ceases to be in force (otherwise than on being superseded by a final certificate) or is revoked, the company—

(a) is not entitled to special film relief for any period for which its entitlement depended on the certificate, and

(b) must amend accordingly its company tax return for any such period.

(3) If the film is completed by the company—

(a) its company tax return for the completion period must be accompanied by a final certificate,

(b) if that requirement is met, the final certificate has effect for the completion period and for any interim accounting period, and

(c) if that requirement is not met, the company—

(i) is not entitled to special film relief for any period, and

(ii) must amend accordingly its company tax return for any period for which such relief was claimed.

(4) If the company abandons film-making activities in relation to the film—

(a) its company tax return for the completion period may be accompanied by an interim certificate, and

(b) the abandonment of film-making activities does not affect any entitlement to special film relief in that or any previous accounting period.

(5) If a final certificate is revoked, the company—

(a) is not entitled to special film relief for any period, and

(b) must amend accordingly its company tax return for any period for which such relief was claimed.


1214 The UK expenditure condition

(1) The company is not entitled to special film relief for an interim accounting period unless—

(a) its company tax return for the period states the amount of planned core expenditure on the film that is UK expenditure, and

(b) that amount is such as to indicate that the condition in section 1198 (the UK expenditure condition) will be met on completion of the film.

If those requirements are met, the company is provisionally treated in relation to that period as if that condition was met. 

(2) If such a statement is made but it subsequently appears that the condition will not be met on completion of the film, the company—

(a) is not entitled to special film relief for any period for which its entitlement depended on such a statement, and

(b) must amend accordingly its company tax return for any such period.

(3) When the film is completed or the company abandons film-making activities in relation to it (as the case may be), the company's company tax return for the completion period must be accompanied by a final statement of the amount of the core expenditure on the film that is UK expenditure.

(4) If that statement shows that the condition in section 1198 is not met, the company—

(a) is not entitled to special film relief for any period, and

(b) must amend accordingly its company tax return for any period for which such relief was claimed.


1215 Film tax relief on basis that film is limited-budget film

(1) The company is not entitled to film tax relief for an interim accounting period on the basis that the film is a limited-budget film unless—

(a) its company tax return for the period states the amount of planned core expenditure on the film, and

(b) that amount is such as to indicate that the condition in section 1184(2) (definition of “limited-budget film”) will be met on completion of the film.

In that case, the film is provisionally treated in relation to that period as if that condition was met. 

(2) If it subsequently appears that the condition will not be met on completion of the film, the company—

(a) is not entitled to film tax relief for any period on the basis that the film is a limited-budget film, and

(b) must amend accordingly its company tax return for any such period for which such relief has been claimed on that basis.

(3) When the film is completed or the company abandons film-making activities in relation to it (as the case may be), the company's company tax return for the completion period must be accompanied by a final statement of the core expenditure on the film.

(4) Subsection (5) applies if that statement shows—

(a) that the film is not a limited-budget film, or (as the case may be)

(b) that, having regard to the proportion of work on the film that was completed, the film would not have been a limited-budget film had it been completed.

(5) The company—

(a) is not entitled to film tax relief for any period on the basis that the film is a limited-budget film, and

(b) must amend accordingly its company tax return for any period for which such relief was claimed on that basis.


1216 Time limit for amendments and assessments

Any amendment or assessment necessary to give effect to the provisions of this Chapter may be made despite any limitation on the time within which an amendment or assessment may normally be made.


Simple, this tax stuff, isn't it?...

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