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HMRC internal manual

Business Income Manual

Films and sound recordings: old regime for films: avoidance: corporate exit schemes: valuation of rights

S70 Finance Act 2005 (applicable where films relief under Finance (No 2) Act 1992 was claimed)

The amounts of the exit charges described at BIM56580 are based on the value of the rights to guaranteed income (see BIM56570) under the guaranteed income agreement (exit events of type X or Y), or of those rights to guaranteed income which are disposed of in an exit event of type Z.

In either case the value is defined as the sum of the net present values (NPV) of each payment of guaranteed income which has not yet been brought into account as a receipt of the trade, calculated according to the formula:

NPV = RI/(1 + T)i 


RI is the amount of each payment of income which is guaranteed under the agreement.

For exit events X or Y, RI will be all payments which have yet to be brought into account as trading receipts at the time of the exit event.  

For exit events of type Z, RI will be all such payments where the right to receive the payments has been disposed of.  

i is the number of days between the exit event and the date on which RI becomes payable under the agreement, divided by 365.

T is the temporal discount rate, which is 3.5% or other such rate as may be set by the Treasury.

Most deferred income agreements used in tax deferral structures will have clearly identified payments or minimum payments, and dates when those payments become due. The above amounts and payment dates will normally be easy to ascertain. However, as explained at BIM56570, the legislation to counter corporate exits requires only that an agreement is designed to secure an amount or certain amounts. It may be that some agreements to which this legislation applies may have some leeway on both the amount and date of the payments. In such cases you should use the amounts and dates which appear most likely.

Any dispute over whether a payment of income is guaranteed under an agreement, or concerning the amount or date of the payment, should be referred to CTISA (Technical).