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Celebrities face £450m bill over tax avoidance scheme

David Beckham, Guy Ritchie and Sacha Baron Cohen are amongst those who invested.

HM Revenue & Customs (HMRC) has won an upper tax tribunal case against a film financing company over a tax avoidance scheme.

Ingenious Media, a financing company that funded over 60 films including Avatar and Life of Pi, was accused of persuading David Beckham, Guy Ritchie, Sacha Baron Cohen and others to put money into an investment scheme that used artificial losses to generate tax relief.

HMRC, who claimed the scheme constituted tax avoidance had already won a first-tier tax tribunal decision three years ago. But Ingenious maintained that it was offering legitimate investments in the entertainment industry and appealed the ruling in March this year.

Its appeal was dismissed at the upper tribunal last week and now HMRC have said that the final verdict means £451m ($555.4m) must be repaid.

It was said that the scheme used limited liability partnerships to invest in films, raising 30% in cash from members and a further 70% from loans that existed only on paper. A large percentage of the cost of the investment was written off in the first year, allowing the participants to claim tax relief equal to the sum that they had invested alongside the right to any film profits.

Other movies involved are said to include Die Hard 4 and Brooklyn.

 

Payback

Many of the celebrities involved have already paid back the tax due after being issued and accelerated payment notice.

Others, who decided against taking up the HMRC settlement scheme and held out for a final decision in their favour, will face demands for payment of tax with hefty penalties and interest charges.

A HMRC spokesperson said: ‘We are pleased with the very positive outcome in HMRC’s favour in this case. This win defeats eight avoidance schemes which used film or games investments to create losses.

“Users of the scheme were given the opportunity to settle their tax affairs a number of years ago and many did. Those who chose to take the case to court are now worse off than those who settled with us.

“HMRC has won around 90% of tax avoidance cases taken to litigation in the past three years, with many more settling before it reaches that stage.”

Ingenious Media are likely to appeal against the verdict.

 

Importance of receiving advice

Instances like this highlight the importance of receiving advice from an experienced Financial Adviser when making decisions about your financial planning – and more importantly understanding what risks are involved.

It is often helpful to talk through your situation with an experienced adviser who will not only advise you on the risks involved but will also work alongside you to create a plan that is most suitable to your circumstances and aspirations.

If you would like to speak to one of the team about your financial planning, get in touch!

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