188ÌåÓý

Where goods are used or consumed partly in the UK and partly overseas, the production/development company should apply a fair and reasonable method to apportion costs between UK and non-UK expenditure.Ìý

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More than one reasonable basisÌý

It is possible that in some cases there may be more than one ‘fair and reasonableâ€� 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.Ìý

Example

Two voice actors, MrÌýA and MsÌýB, are respectively paid fees of £100k and £50k for providing voices for a video game. The voice recordings are made partly in the UK and partly overseas,Ìýto coincide with their other commitments.Ìý

Recording studios are booked for two weeks in the UK and two weeks in Canada. Both actors commit to making themselves available throughout these periods. However, they are not requiredÌýfor the full length of time.Ìý

From this information, it is possible to apportion using two fair and reasonable methods.Ìý

It would be reasonable to apportion the actorsâ€� fees between the UK and outside the UK based on the time that each has made themselves available for recording in the respective locations. That is, 50% in the UK and 50% outside.Ìý

Total fees apportioned to UK expenditure would be £75k.Ìý

It would also be reasonable to apportionÌýthe actorsâ€� fees between UK and non-UKÌýbased on the time that each spent in the recording studio. In that case, the respective proportions of MrÌýA and MsÌýB’s fees attributed to the UK would be 67% and 25%.Ìý

Total fees apportioned to the UK would be £79.2k.Ìý

Either method may be used. However, it should be used consistently where possible. It would not be acceptable to ‘cherry pickâ€� and apportion MrÌýA’s fees by reference to recording days and MsÌýB’s fee by availability.Ìý

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Use of allocation keysÌý

Some of the expenditure which needs to be apportioned 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.Ìý

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

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Impact of the resultÌý

What is a fair and reasonable method of apportionment in any particular caseÌýshould have regard to the likely importanceÌýor impact of the result.Ìý

Consider two productions. Production A is clearly going to meet the 10% minimumÌýUK core expenditure threshold (on any reasonable apportionment)Ìýand the impact of any apportionment is to fractionally adjust the amount of expenditure qualifying for relief. Production B is poised close to the 10% UK expenditure threshold, so the result of an apportionment could determineÌýwhether it qualifies for relief at all.Ìý

For Production A a relatively ‘rough and readyâ€� apportionment may be ‘fair and reasonableâ€�,ÌýwhereasÌýfor Production BÌýthe company may be expected to justify its claim to relief by reference to a more refined, and possibly moreÌýlaborious, approach.Ìý