10th December, 2021 I’m often educated by my law trained business partner as to…
The tale of the two tailed fox
Films have tails – often very long ones. Gone with the wind (made in 1939) still makes money every year. Revenues from video/DVD/streaming, spin off productions on screen or stage, books, etc, all combine to produce revenue.
Tax schemes have tails – often very long ones. Back in the wild west days of the 1970’s many schemes were one off transactions that claimed to produce tax relief and have no other purpose. The more “sophisticated” schemes of the 1990s and later often had long leases or permanent “businesses” attached to them. Some of these remain.
Add in the very long delays between a scheme operating and its day in Tribunal, perhaps a decade, and extracting oneself from these entanglements becomes a seemingly never ending chore.
So much so in fact that whilst many of the tax houses that promoted the film schemes have long since “gone dark”, there remain outposts of advisers who remain of the view that there is yet money to be made in keeping the reels turning.
The truth here is that the Tribunals and higher have handed down a series of decisions on film schemes which make it very difficult for any of the pre packaged deals of the past to be seen as bona fide trading operations. With a few exceptions any structure that relied for tax relief upon real trading is now almost certain (in my view) to find that route blocked. Further the decisions made by Judges have also meant that finding a settlement which meets principles laid down, for those schemes yet to have a day in Tribunal, has been challenging.
It is a fact that whilst the Tribunals have examined schemes in forensic detail, there remain avenues that can be explored which are said to offer “better” terms than the present crop of HMRC settlements. These include arguments that as the chosen vehicle was not trading, there can be no taxable income and that the money invested by individuals was not for trading purposes but was some form of capital investment. Some of the alternative arguments seen here get five stars for the plot twist they create but I very much suspect that the critics in the expensive (Tribunal) seats will not be impressed.
Many film investors are not in the financial situation now that they were when the films were first released. Some will consider that whilst they would like to settle, they are financially unable to do so on the terms on offer. As such a “reboot” of the legal arguments with HMRC as to the tax consequences of their dalliance in film, seems like a good way of delaying matters.
Such sequels to the arguments already heard in Tribunal should come with a warning of “scenes that the viewer may find upsetting”. Judges are not going to be impressed with frivolous or vexatious new arguments seeking to overturn what is now a decade of decisions. HMRC has not covered itself in glory in its handling of film schemes, but now has a script and is very precious about deviating from it. Neither of these bodies is going to tamely accept that a new argument emerging so long after the key decisions, will allow new light to be shed on their performance.
Some films can be successfully rebooted and some (arguably) are better than the original. I fear that the same cannot be said for viewing a film from 15 years ago and finding fresh meaning in it.
Beware of new directors promising to reinvent the past glories of film schemes.
Settlement with HMRC on the crop of film schemes is not perhaps the horror show you imagine. Painful for a short time? Perhaps. Manageable? Definitely. Better than committing to an unknown but long battle against hostile forces – and better than making an open ended commitment to more fees? Undoubtedly.
The fat lady has sung on many film schemes. Now is the time to speak to us about managing a graceful exit.
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