Wayne Rooney’s potential tax exposure arising from the failed Invicta 43 tax scheme is the latest example of sports stars and celebrities getting their fingers burnt as a result of investing in highly artificial, highly complex tax arrangements that have potentially been mis-sold.
In recent times, we have seen many such high-profile scandals; Jimmy Carr was branded “morally wrong” by then prime minister, David Cameron, for using the K2 tax scheme; Chris Moyles, the radio DJ, invested in the infamous Working Wheels tax scheme.
Meanwhile, countless other sports stars, celebrities and high profile individuals have come a cropper by investing in film finance schemes.
Originally introduced by the Labour government to encourage British film production and generate revenue for the UK economy, film finance schemes generally involved an investment in a limited liability partnership (LLP) which was then leveraged with bank debt (up to 90 per cent not being uncommon).
In many cases, the investors would invest capital of say £100,000 and borrow £900,000, giving them a total investment of £1m.
The LLP would acquire rights to certain films and lease them back to the production company.
The schemes were sold by accountants and financial advisers, not as investments to boost the British Film Industry and make a profit for the investor, but to generate tax losses for the investors to be used there and then, with the tax saved paid back over 10 years or more.
The wholesale marketing and distribution of highly engineered tax schemes has resulted in a large number of them being successfully litigated by HMRC, leading to over £1bn of tax being recovered.
The result for investors such as Mr Rooney is that they are denied tax relief on the interest element of the loan but are liable to income tax on the income of the partnership.
The investors pay their fees but do not get the tax loss and are left with the taxable income.
It is very likely that the footballer didn’t know what he was investing in, the inherent risks attached to the scheme or the likelihood of an HMRC inquiry.
It is equally likely that his advisers received a significant non-refundable commission on his entering into the scheme.
The tax avoidance industry has, thankfully, been well and truly hit hard, first by the Disclosure of Tax Avoidance Scheme rules, which were followed by the killer blow, the introduction of Advance Payment Notices in 2014.
Mr Rooney and all the other individuals who may have been caught by HMRC’s hugely successful clamp down on tax avoidance schemes might think they have a right to be furious, but there comes a time when an individual has to take responsibility for their own actions.
If something is too good to be true, then it more than often is.
Miles Dean is managing partner at Milestone International Tax Partners
