HMRC claims big successes against tax avoidance schemes

HM Revenue & Customs (HMRC) is claiming a win worth more than £820m in two challenges to popular tax avoidance schemes – but the promoters of one scheme have challenged the Revenue's version of events.

Accoding to HMRC, the First-tier Tribunal found for it in cases involving the "Ingenious" scheme, which tried to use artificial losses arising from investments in a range of movies including Avatar, Life of Pi and Die Hard 4; and the "Icebreaker" scheme, which attempted to create artificial losses from investments in limited liability partnerships.

HMRC said both schemes saw users claim more in tax relief than they had invested. The Ingenious scheme members claimed to have financed 100% of the cost of producing films/games. The bulk of the cost was written off in year one, giving the partners large losses which were set against other income; but only 30% of the expenditure was actually funded from the partners’ cash, the other 70% being routed through the partnership on paper only.

However the tribunal held that the Ingenious film production partnerships were bona fide businesses run with a view to profit, and disallowed aspects of HMRC's claim. A spokesperson for Ingenious said the partnerships disputed the basis on which the tribunal had restricted loss relief to investors and were considering an appeal.

Icebreaker scheme members claimed tax relief on losses many times higher than the actual amount they invested in the partnerships. The return on the partners’ “investment” was the tax relief, which was considerably larger than their cash contribution. The ruling follows an earlier success for HMRC in 2014.

Users of the Ingenious scheme now face bills for interest and legal fees on top of £434m in unpaid tax; however the amount at stake was closer to £1bn. The amount at stake in the Icebreaker decision was £134m.

The tribunal said the Icebreaker scheme "was known and understood by all concerned to be a tax avoidance scheme". Tax relief was inflated by unnecessary borrowing, "coupled with the illusion that the borrowed money was available for use in the exploitation of intellectual property rights by the device of the purported payment of a large production fee offset by the equally purported payment of a fee for a share of the resulting revenue".

Click here to view the decision in the Ingenious scheme.