HMRC wins blockbuster tax avoidance cases

HM Revenue and Customs (HMRC) has won two major tax avoidance battles against the Ingenious Film Partnership and Icebreaker avoidance schemes in cases worth more than £820 million in tax owed and interest.

The Ingenious scheme tried to use artificial losses arising from investments in a range of movies, including the blockbusters Avatar, Life of Pi and Die Hard 4 – and the Icebreaker scheme attempted to create artificial losses from investments in limited liability partnerships.

Users of the Ingenious scheme were given the opportunity to settle on similar terms nearly four years ago and now face big bills for interest and legal fees on top of the £434 million in unpaid tax resulting from the scheme.

Both schemes saw users claim more in tax relief than they had invested.

The Icebreaker decision is HMRC’s second win against the scheme, following a victory in the First Tier Tribunal in 2014. The total tax at stake was £134 million.

This means that HMRC has now secured more than £1.2 billion in disputed tax from wins in avoidance litigation since the beginning of April.

It also comes on the back of HMRC's continued success tackling tax avoidance through the Accelerated Payments regime. In the two years since the legislation was introduced, more than £2.5billion has been paid on Accelerated Payment Notices, and more than 50,000 notices have been issued.

Jennie Granger, Director General of Enforcement & Compliance, HMRC, said:

“These were some of the biggest films of all time, and the schemes involved people claiming far more in tax than they invested in the first place. We always say that if something is too good to be true then it probably is. And in this case the long legal battle will mean that investors face even bigger bills for interest and legal costs.”

Notes to editors

1.  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% was routed through the partnership on paper only.

2.  The 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.

3.  The First Tier Tribunal said “the Icebreaker scheme is, and was known and understood by all concerned to be, a tax avoidance scheme. The aim was to secure sideways relief for the members, and to inflate the scale of the relief 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. In our judgment the schemes substantially failed in their purpose.”

4.  The Tribunal’s decision has bound a further 46 limited liability partnerships (LLPs), affecting almost 1,000 members of the partnerships. This is another example of taxpayers claiming their case is different to those the courts have already decided don’t work, but failing to win that argument when their case gets to tribunal. 

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