Film scheme investors first to fall foul of taxman's new avoidance policy
HUNDREDS of investors including entrepreneurs, movie stars, footballers and pop stars could be forced to pay back as much as £1bn in tax relief to HM Revenue & Customs ahead of a major court battle scheduled for November.
Proposals announced in January see those in tax avoidance schemes compelled to pay their bills up front while HMRC conducts investigations into their arrangements. The move is designed to eliminate the tactic some employ of holding onto disputed tax while their case is investigated and litigated, which can take years.
The dispute is the latest in a series of battles between film partnerships and the taxman, notably resulting in the Eclipse 35 investment vehicle being shut down. Ingenious Film Partners 2’s investors put in a minimum of £100,000 to help to fund films such as Life of Pi, Avatar and Girl With a Pearl Earring, but HMRC contests it does not deliver the tax relief it claims to and instead is an avoidance regime.
Ingenious denies the suggestion.
At present, taxpayers must make a disclosure to the taxman when they enter a tax avoidance scheme, and in doing so accept HMRC may investigate and challenge it.
Under the latest plans, taxpayers will be free to continue to make their case to the tribunal or court and, if successful, their money will be returned with interest.
Critics, however, are dismayed by the retrospective nature of the plans, which will examine arrangements given a Disclosure of Tax Avoidance Schemes (DOTAS) number as far back as 2004. The apparent extension of HMRC’s powers, too, has drawn concern from practitioners.
In a statement, Ingenious Media said: “HMRC’s proposals on accelerated tax payments in respect of DOTAS registered arrangements that are under enquiry, as outlined in the recent consultation document, are de facto retrospective, indiscriminate and unfair. This is the view of the CIoT and the ICAEW as well as ourselves. The CIoT talks in its submission to HMRC about ‘the erosion of the principles of a fair justice system,’ while the ICAEW says the proposals are ‘fundamentally flawed’.
“Ingenious has been trying to obtain a definitive ruling on the tax status of its film and games partnerships for many years. The company requested a hearing before the tax tribunal in 2011 to resolve this matter as expeditiously as possible, but HMRC has repeatedly used stalling tactics to delay a hearing.
“Ingenious is proud of its record in financing hit films, including Avatar, Life of Pi and The Best Exotic Marigold Hotel, which have generated more than £1bn of taxable revenue for the UK Treasury, with a further £1bn of taxable revenue expected over the life of the films.”