A controversial film-funding scheme whose celebrity investors included David Beckham, Gary Lineker, Ant and Dec, Wayne Rooney and Jeremy Paxman has lost its latest court battle against a £700m tax bill. These famous faces were among the 1,400 investors who poured cash into the Ingenious partnerships on the promise of profits as well as tax breaks by supporting films such as Avatar and Life of Pi.
But HMRC argued that Ingenious claimed relief on artificial losses from its films, meaning that the schemes were not legitimate investment opportunities but a means of avoiding tax, and last August a court ruled investors should only receive tax relief on 30% not 100% of their investment. The two sides failed to agree on the terms of the ruling, with HMRC believing it meant the production costs associated with making the films were capital costs, and thus the investors were not due any tax relief on this either.
In a new ruling this week to clarify the original decision, a tribunal judge agreed that none of the tax deductions were allowable, with HMRC stating “We are pleased that the tribunal has agreed with us that the vast majority of what was claimed in tax relief by Ingenious investors was simply not due.”
There is no suggestion that any of these celebrities entered into the investment with any intent to evade taxes, and indeed most of the disputed tax bills have already been paid by investors, but it does raise the question, how can one know if a tax scheme is legitimate, or even if a scheme which is deemed lawful today could be invalidated and subject to backdated tax at a later date?
Says Damian Evans, partner at Evans Entwistle: “If a scheme looks too good to be true, then it usually is. The simplest explanation is that tax evasion is knowingly understating your tax position; tax avoidance is knowingly using loopholes to reduce your tax bill, whilst running the very real risk that that loophole may be closed; whereas efficient tax planning is effectively using all fiscal legislation as it is intended”
We can advise on all aspects of tax planning from a personal and a corporate perspective – for a no obligation consultation on your taxation affairs, contact Damian on 02920 713 800.