Income Tax (Trading and Other Income) Act 2005 section 135

Allocation of production or acquisition expenditure to relevant periods

Section 135 sets out how production or acquisition expenditure on original master versions of sound recordings should be allocated across accounting periods when calculating trading profits.

• Where a trade involves exploiting original master versions of sound recordings (not held as trading stock), expenditure on producing or acquiring those masters can be deducted by allocating it across relevant periods on a just and reasonable basis
• The allocation must follow an "income matching" approach, spreading costs over the period during which the master version's value is expected to be realised, having regard to unallocated expenditure brought forward, expenditure incurred in the period, and the proportion of value realised versus remaining value
• Alternatively, a "cost recovery" approach may be used, allowing the trader to allocate up to the full value realised from the master version in the period, even if this exceeds the income-matching amount
• Expenditure already allocated to one period under this section cannot be allocated again to a different period, preventing double deductions