FORMER GOVERNMENT CHIEF WHIP Andrew Mitchell has been named as one of the investors in Ingenious Media's film schemes that HM Revenue & Customs maintains are tax avoidance vehicles.
Mitchell is best known for resigning from the government in October 2012 over an argument with some Downing Street policemen - later dubbed ‘Plebgate' - an incident that has left him locked in a series of high profile libel actions.
In the mid-2000s he invested in a vehicle called Ingenious Film Partners 2.
Ingenious Media is a film investment company and recently issued a warning to 1,300 investors, including sports stars such as David Beckham, that they could be forced to pay back all the tax they saved, possibly with interest, by using its alleged tax avoidance scheme.
The company has financed box-office hits such as Avatar and has previously denied that its film and game partnerships are tax avoidance schemes, instead saying they are legitimate businesses that have generated more than £1bn of taxable revenue.
The schemes functioned by generating loss relief on the losses incurred by the partnerships during the first or early years of trading.
As a minimum, investors in Ingenious Film Partners 2 could put in £36,000. If they put in that much, Ingenious would then loan them a further £64,000 to invest, taking their stake up to £100,000. That would be used to buy shares in film productions which, in their first year, created a roughly £90,000 loss.
Top-rate taxpayers who invested in the scheme could choose to write off that loss against their taxes. In return for putting in £36,000, they would get about the same amount in tax relief and end up owning a £100,000 stake in a group of films.
Mitchell told the BBC's Newsnight: "When the last Labour government introduced tax incentives to invest in the British film industry, along with many other investors I did so through Ingenious Films. I resigned from Ingenious when I was in government and always pay all tax when due."
This week, HMRC published a 1,200-strong list earmarked for accelerated payment, which included Ingenious schemes.
Under the new ‘Accelerated Payment' rules, HMRC will be able to make taxpayers pay disputed tax in advance, rather than waiting for the outcome of a tax tribunal ruling. If the taxpayer wins their case, the money is reimbursed with interest.
Royal Assent is required for HMRC to begin utilising the powers, but that is expected within the coming days, along with the rest of the Finance Act.
Last week, Accountancy Age learned HMRC expects to raise £7bn through accelerated payment of disputed taxes from 43,000 taxpayers over the next two years.
Of that figure, 33,000 are individual taxpayers expected to contribute £5.1bn. The individuals affected have a mean gross income of £262,000, HMRC said. The other 10,000 are businesses, bringing the predicted figure up to £7bn.
Ingenious Media said in a statement: "There has since been a major change of position by the government driven by a rather crude attempt to generate cash for the Exchequer in a wholly unfair and unjust manner. HMRC have failed to distinguish between commercial businesses and tax avoidance schemes and have, without proper consideration, deemed all film arrangements to be tax schemes.
"The film partnerships run by Ingenious Media have already generated over £1bn in taxable income for the UK Treasury, with more to come over the lifetime of the films they funded. They helped to bring movies including Avatar, the Best Exotic Marigold Hotel, the Girl with a Pearl Earring, Vera Drake, Shaun of the Dead, Hot Fuzz and Hotel Rwanda to the screen and are clearly run for profit."
Image credit: David W. Johnson via Flickr
You may also like
If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.
In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.