FPC50130 - Film Tax Relief: Eligible Expenditure: Ineligible expenditure
CTA2009/S1199
To qualifying for Film Tax Relief (FTR), core expenditure must be of a kind that would be taken into account under Chapter 2 Part 15 in calculating the profit/loss of the film production company’s (FPC’s) separate trade. It is not possible to give a comprehensive list of non-qualifying expenditure, but the following items merit comment.
Completion bond and other forms of insurance
Completion bonds are a form of insurance against the risk that a film may not be completed. Costs of the completion bond do not qualify for FTR. They are not incurred on film-making activities.
Other forms of insurance, more directly concerned with the film-making activity itself, may qualify. For example, the owner of a UK property used as a location may require that the property should be insured against possible damage sustained during or as a result of filming. The costs of such insurance would be allowable.
Development costs
See FPC50120 - these costs are not part of core expenditure.
Entertaining
Cost related to hospitality and entertainment are disallowable under normal rules - ICTA88/s577.
Publicity and promotion
Publicity and promotional costs do not qualify for FTR. They are not concerned with the making of the film.
Audit fees
These do not relate to film-making activities - they do not qualify for FTR.
Bank interest and charges
While interest itself is regarded as part of the costs of financing a film, and therefore not incurred on film-making activities, charges incurred by banks for facilities that are needed by the FPC to engage in film-making activities (e.g charges associated with the maintenance of a current account from which suppliers, cast and crew can be paid ) are part of the costs of film-making.
Furlough payments, including those met by the Government through the Coronavirus Job Retention Scheme (CJRS)
Tax relief is only available on ‘production expenditure’, which is defined as expenditure on film-making activities in connection with the film as per s1184. ‘Film-making activities’ are those involved in development, pre-production, principal photography and post-production of the film – s1183. To qualify for an additional deduction, expenditure must also meet the definition of ‘core’ in s1184: it must be on pre-production, principal photography or post-production.
When a company places an employee on furlough, the employee must cease work. The employee is not carrying out film-making activities and is not working on pre-production, principal photography or post-production.
Staffing costs in respect of an employee on furlough are therefore not considered by HMRC to be on film-making activities, and do not constitute production expenditure. Such payments are not considered to be costs of the separate film trade and are not eligible for tax relief. This applies equally to all furlough payments, whether or not they are reimbursed by the CJRS, and includes any ‘top-up’ element. If an employee has been placed on flexible furlough, then any payment in respect of the furloughed time will not be eligible.
Holiday pay and sick pay are statutory requirements. HMRC considers them to be a necessary cost of employing staff and part of the cost of their working time. Any period during furlough which is taken as annual leave or recorded as sick leave is potentially eligible for relief, and should be apportioned in line with work done.