The Supreme Court today (15 November) ruled against users of a failed tax avoidance film partnership scheme, which tried to use legitimate investment in the film industry as a hook for tax avoidance.
HMRC defeated the avoidance scheme, in a claim brought by Jorge Manuel De Silva and Bernard Alec Dokelman, in court, but the pair argued on a technicality that the tax office could not overturn their loss relief claims.
The Supreme Court has today (15 November) disagreed - ruling in favour of HMRC and ensuring that these taxpayers, and others waiting for this ruling, will have to pay their tax which could amount to £1bn extra for the nation’s coffers.
Jim Harra, director general for customer strategy and tax design at HMRC, said: “This is another great success in HMRC’s drive against tax avoidance.
“HMRC defeated De Silva and Dokelman’s tax avoidance scheme but they still argued on a technicality that the department could not collect the tax.
“The Supreme Court’s decision in favour of HMRC on this point will ensure that these taxpayers and others waiting behind their case will have to pay what they owe.”
HM Revenue & Customs lost only three of the tax avoidance cases which went to court during 2016 to 2017.
During that year there were a total of 26 decisions in litigation over tax avoidance between HMRC and a company or individual.
As well as the three losses there was one mixed result, where the judge found in favour of HMRC on some points but against it on others.
One of the cases which HMRC said it won involved Ingenious Film Partners 2 LLP and Ingenious Games LLP.
Between them the LLPs were involved in the production of a large number of films and video games and they argued that, in the early years, this led to trading losses which their investors could set against their other taxable income.
HMRC argued that it was not a legitimate investment but a way of avoiding tax.
In August 2016 the Tax Tribunal ruled the Ingenious Media Film partnerships, which were designed to reduce investors’ tax liability, were in fact trading with a view to a profit.
This crucial question meant the partnerships have escaped being labelled as tax avoidance.
But the tribunal effectively reduced the amount of money the investors can claim back through tax, a move which a tax expert has said could leave some making a loss.
The three cases HMRC lost involved Investec Asset Finance, Project Blue Limited and the children of a man who used tax planning to mitigate his inheritance tax bill.