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HMRC internal manual

Business Income Manual

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Films and sound recordings: master versions of sound recordings: income matching method

S135 Income Tax (Trading and Other Income) Act 2005, S151 Corporation Tax Act 2009

The income matching method is one of the two methods applying to master versions of sound recordings which are permitted for writing-off revenue expenditure on production or acquisition.

The income matching method provides for expenditure to be allocated to a relevant period (BIM56210) on a just and reasonable basis having regard to the following:

  • the amount of expenditure yet to be written-off at the beginning of the relevant period;
  • the proportion which the value of the recording realised in the period bears to that value plus the estimated residual value at the end of that period;
  • the amount of any new expenditure incurred in the period on the production or acquisition of the master version (e.g., contingent amounts which have become payable after completion or acquisition); and
  • 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.

The amount of expenditure yet to be written-off is calculated by excluding from the total expenditure sums that have been written-off in earlier periods. This includes all expenditure already written-off under this method or the cost recovery method.

The value of the master version realised in the period will be the receipts arising from the exploitation of the master version in that period. The estimated residual value will generally be the gross amount of the estimated future income from exploitation of the master version. Estimates of future income will inevitably be revised over the life of the sound recording as its success or otherwise becomes apparent.

Examples of the application of the income matching method are given at BIM56220.

Different criteria may apply where a sound recording is exploited by way of a finance lease or fixed licence fee where the lessor’s or licensor’s return is not dependent upon the commercial success of the recording (BIM56240).