Case: Delay in certification of film prevents valid claim for relief
 UKFTT 0066 (TC)
Judge Kevin Poole
Decision released 28 January 2019
Income tax – 100% relief for expenditure on qualifying film – Finance (No. 2) Act 1992, s. 42 and Finance (No. 2) Act 1997, s. 48 – Delay in obtaining certificate as to status of film – Whether claim made out of time – Alternative claim for subsequent year under Income Tax (Trading and Other Income) Act 2005, s. 140 – Whether allocation of expenditure to relevant year made out of time – Whether valid provisional claim made – Whether certification of film by Hungarian authorities under European Convention on Cinematic Co-production sufficient – Appeal dismissed
Innvotec 6 LLP  TC 06952
The appeal concerned accelerated relief for expenditure on the purchase of the master negative of a film for approximately £5.8 million in November 2004. HMRC had denied relief on the grounds that claims for relief were out of time as the certificate from the Department of Culture, Media and Sport (DCMS) was not obtained until 2014.
The film was agreed to be a co-production with co-producers established in the UK and Hungary.
The main point considered by the FTT was whether the appellant had made a valid claim for a deduction under F(No. 2)A 1992, s. 42(1) for the 2004–05 tax year bearing in mind the time limit for making a claim of the first anniversary of 31 January following the year of assessment to which the claim relates (F(No. 2)A 1992, s. 42(6)). If not, then the FTT had to consider whether the appellant had validly allocated expenditure to qualify for a deduction under ITTOIA 2005, s. 140(3) for the year 2005–06.
The appellant argued that the grant of approval by the Hungarian authorities (on 4 April 2005 or 5 July 2007) should be treated as equivalent to the issuing by the DCMS of the relevant certificate. This was not accepted by the FTT as it regarded that the European Convention on Cinematic Co-production simply granted the benefits provided for by the legislative and regulatory provisions in force in a contracting state to each co-producer established in that contracting state. Further, the convention simply empowered the DCMS to issue a certificate in respect of a co-production film as if it had been a British film.
The FTT considered that in order for a claim to be valid, the DCMS certificate must have been issued by the time that the claim was made. The FTT thought that the appellant’s purported provisional claim was either a notification of an intention to make a valid claim once the DCMS certificate was issued or an attempt to notify a claim that would automatically come into effect upon the issue of the DCMS certificate. The FTT decided that the claim made in the 2004–05 return was not a valid claim.
The FTT considered that relief under F(No. 2)A 1992, s. 42 was not available for the 2004–05 tax year unless a valid claim was made by 31 January 2007 or the deadline was extended by the operation of TMA 1970, s. 43A and 43C. The partnership return for 2004–05 was amended by HMRC’s closure notice of 26 May 2011. This meant that that the appellant’s claim for relief (if a claim could have been made within the time allowed by the Taxes Acts) could be made at any time up to 5 April 2013. The FTT concluded that this did not assist the appellant for two reasons:
•A valid claim could not have been made within the original time limit as the DCMS certificate had not been issued by 31 January 2007; and
•Even if that was wrong, a valid claim could not be made on or before 5 April 2013 as the DCMS certificate had still not been issued by that date.
After the introduction of ITTOIA 2005, s. 140, the relief operated differently. It did not require a claim; simply an allocation of expenditure. The appellant’s partnership return for 2005–06 did not include the acquisition expenditure and no subsequent amendment was made to the return. The FTT considered that it was not possible to retrospectively allocate expenditure to a period at any point in time and that the normal time limit for amending a return would apply. As expenditure had not been allocated by the deadline for amending the 2005–06 return of 31 January 2008 and the DCMS certificate had not been issued by that time to meet the requirement that the film was a ‘certified master version’, the conditions for relief were not met for the 2005–06 tax year. Similarly, any extension of the time limit by the operation of TMA 1970, s. 43A and 43C did not assist.
The FTT dismissed the appeal, but HMRC acknowledged that the appellant would still be entitled to relief for the expenditure under F(No. 2)A 1992, s. 40B or ITTOIA 2005, s. 135 that matches expenditure against income rather than permitting an accelerated deduction.
Although this decision relates to the historic rules for film production relief, one of the conditions for making a claim for the current film production tax relief requires films to obtain certification from the DCMS. The current rules also include a provisional entitlement to relief while the film is in production, but this is also subject to an interim certificate being obtained from the DCMS.
Similar certification requirements also apply to television tax relief and video games tax relief.
Obtaining certification from the DCMS in a timely manner remains key to being able to make a valid claim for these reliefs.
For commentary on the creative industry reliefs, see In-Depth at ¶715-000ff.