The First-tier Tribunal held that expenditure on rights to income from films was capital rather than revenue in nature, and was therefore not deductible in computing taxable profits.
The three appellant limited liability partnerships (LLPs) were involved in the production of films and video or computer games. Following an earlier decision of the First-tier Tribunal (FTT) ([2016] UKFTT 521 (TC)), a dispute remained as to whether deductions for expenditure on the rights to income from the films were not deductible in computing taxable profits (as a result of ITTOIA 2005, s 33 or its predecessor ICTA 1988, s 74(1)) on the basis that they were capital rather than revenue in nature.
The appellants argued (among other things) that it would be absurd if the expenditure on the rights was disallowed as capital and the LLPs remained taxable on the gross amounts received without any deduction for the cost of acquiring those amounts.
