A group of taxpayers that used a marketed tax avoidance scheme have lost their appeal at the Supreme Court (SC) that an agreement made with HMRC did amend their personal tax returns.

The scheme involved the taxpayers becoming limited partners of partnerships that would invest and trade in film production and acquisitions.  Generous tax breaks were given to the film industry to stimulate growth and the partners in the early years of trade could allocate the losses to earlier years’ income thereby reducing their tax exposure, some of the losses were inflated using non-recourse or limited recourse loans.  HMRC had opened enquiries into the partnership’s returns and subsequently agreed that the losses would be significantly reduced, instead of taking the matter to tribunal.  Once this agreement was made HMRC then wrote to the individual partners stating that their tax returns for all years concerned had been changed and that significant amounts of tax were now due.

The partners applied for judicial review of the letters stating that HMRC was time barred from the amendment as the claims they made were outside of their returns.  The Upper Tribunal and the Court of Appeal dismissed the appeals and the case ended up at the SC.

The SC has detailed out the relevant legislation and found that the clams made formed part of the later returns that were under investigation by HMRC and this investigation had been opened within the time limit.  The SC highlighted the legislation that linked the opening of partnership returns to the deemed opening of partners returns.  This ruling confirms that any information within a return, such as a carry back claim to earlier periods is part of the information contained within the later return, allowing more scope for HMRC to open enquiries.

The decision can be found at: R (on the application of De Silva and another) (Appellants) v Commissioners for Her Majesty’s Revenue and Customs (Respondent) – The Supreme Court

This is another case from film partnership tax avoidance schemes and the latest appeal has been defeated, again.  Please contact us if you have been marketed a tax avoidance scheme, we can advise on their effectiveness, many schemes have been shown not to work.