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HMRC internal manual

Film Production Company Manual

Film Tax Relief: Eligible Expenditure: Apportionments: 'fair and reasonable'

CTA2009/S1185; CTA2009/S1200

In order to determine the amount of Film Tax Relief (FTR) to which a film production company (FPC) is entitled it is necessary to determine the extent to which services and goods contributing to the film’s core expenditure are used or consumed in the United Kingdom (FPC50050).

Where a film is produced in partly in the UK and partly overseas, such as in an international co-production, it will follow that some goods and services will be used or consumed in more than one country. In such cases, it will be necessary to make an apportionment of the relevant core expenditure between UK and non-UK expenditure. This applies in the case of goods and services used or consumed during pre-production, principal photography and post-production.

The manner in which such an apportionment is made will be determined on a case by case basis, but must be done on a fair and reasonable basis.

More than one ‘fair and reasonable’ basis

It is possible that in some cases there may be more than one ‘fair and reasonable’ way of apportioning costs. The requirement is not that the apportionment must be made using the fairest and most reasonable basis, but simply that it must made on a fair and reasonable basis.

Example 1

Two principal actors, Mr A and Ms B, are respectively paid guaranteed fees of £1m and £0.5m for appearing in a film, which is shot partly in the UK and partly abroad. Each commits four weeks to principal photography, two weeks in the UK and two weeks overseas. But the shooting schedule is such that neither is required on set for the whole of the month.

  Mr A Ms B
Time available for principal photography - UK 14 14
Time available for principal photography - overseas 14 14
Filming days - UK 10 3
Filming days - overseas 5 9

In this example it would be reasonable to apportion the actors’ fees between the UK and overseas territory based on the time that each was available for filming in the respective locations - 50% UK: 50% overseas. Total fees apportioned to the UK would be £0.75m

It would also be reasonable to base the apportionment on the days of actual filming in each country - in which the respective proportions of Mr A and Ms B’s fees that should be attributed to the UK would be 67% and 25%. Total fees apportioned to the UK would be £0.792m.

But it would not be fair and reasonable to ‘cherry pick’ by apportioning Mr A’s fee by reference to filming days and apportioning Ms B’s fee by availability.

Use of allocation keys

Some the expenditure of which an apportionment is required is may not be easily attributed to a particular location, or such attribution may only be possible with considerable effort. In such cases it will be fair and reasonable to base the division on other related expenditure that is more amenable to apportionment.

For example, it would be fair and reasonable to apportion consumption the overall costs of celluloid film used during production - if it were not possible to determine the extent to which it was consumed at various sites - between UK and overseas territories based on the number of days of filming that took place in the various locations.

Impact of the result

What is a fair and reasonable method of apportionment in any particular case should have regard to the likely importance or impact of the result.

Consider two films. Film A is clearly going to meet the limited-budget condition (FPC10160) and the amount of its core expenditure is obviously (on any reasonable apportionment) going to exceed 25% (FPC40040) the impact of any apportionment is to fractionally adjust the amount of expenditure qualifying for FTR. Film B is poised close to the limited-budget and 25% UK expenditure thresholds so the result of an apportionment could determine both the rate of FTR available and indeed whether the film qualifies for FTR at all.

For Film A a relatively ‘rough and ready’ apportionment may be ‘fair and reasonable’ whereas for Film B the FPC may be expected to justify its claim to FTR by reference to a more refined, and possibly more laborious, approach.