TPC50035 - Eligible expenditure: payment for intellectual property rights
Television Tax Relief (TTR) for television programmes is available on production expenditure incurred at all stages except for development. It is therefore important to identify and quantify development expenditure.
Book rights
Expenditure on the rights to use a story or book as the basis of a television programme is production expenditure.
Expenditure on wider rights, such as the rights allowing the commercial exploitation of characters, story or other intellectual property, is not always production expenditure. Some of these rights may be required to produce the television programme, and so qualify as core expenditure. Where these are not necessary to the production of the television programme the costs associated with these rights will not be core expenditure.
Methods of producing television programmes vary extensively, so each case must be considered carefully. However, in general, a payment for an option over the right to use a book or story is speculative and not core expenditure. Each case needs to be considered on its facts, but in general the purchase of the actual rights needed to produce the television programme is not speculative and so will be core expenditure.
Example 1
An independent producer likes a book and thinks that a television programme might be made out of it.
She does some preliminary work, including setting up a Special Purpose Vehicle (SPV) and seeking initial opinions from colleagues and financiers. An SPV, in this instance, is a company through which any costs associated with the television programme will be channelled. If the SPV is not a company then it will not be eligible for TTR.
All seems favourable, so the company pays for an option over the filming rights. This is purely to protect their position and is speculative.
Further development work follows, which includes commissioning a screenwriter to write a screenplay. Finance is found (i.e. ‘greenlighting’). At this stage the SPV exercises the option so that it can produce the television programme.
The SPC’s payment for the rights is core expenditure. The payment for the option is not core expenditure.
It is not yet possible to say whether the payment for the screenplay is core expenditure or not. If the screenplay is heavily rewritten then the payment for the first draft might be considered to be purely development expenditure. However, if the screenplay were to remain largely unchanged, then a reasonable proportion of the cost would be core expenditure.
Example 2
A studio buys outright the intellectual property in a series of popular children’s adventure stories and sets to work making a series based on them. It does this by engaging different SPV companies to produce and deliver episodes each based on separate books.
Included with the costs borne by each SPV is a recharge to the studio of the book rights relating to the episode it has been commissioned to produce. The studio retains all other intellectual property rights that are not necessary for production.
Each SPV will treat the payment to the studio for book rights as core expenditure.
Musical, literary and stock film rights
The considerations for rights connected to music, songs, literary works and stock footage are similar. Where these are incorporated into the programme during principal photography or post-production, these will be core expenditure.