Operators of a tax avoidance schemes (the Operators) have won their case at the Court of Appeal (CoA), albeit on a situation which had wiped out 97% to 96% of the trading losses purportedly generated by the schemes.
The schemes were investments in the film and video games industries and were designed to generate significant trading losses that could then be offset against income for higher rate taxpayers. An earlier ruling at the First-tier Tribunal (FTT) had disallowed the majority (96%-97%) of trading losses for film investment partnerships but had disallowed all the video game partnership losses as this partnership was not found to be trading.
The Operators appealed the Upper Tribunal (UT) who stated that the FTT had erred in law when finding that the film partnership were trading, albeit on a reduced basis and remade their decisions to state that the film partnerships were not trading and also that the film partnership were not operated with a view to a profit, and therefore couldn’t be considered transparent partnerships for the purposes of income tax. The Operators appealed the UT’s decision to the CoA.
The CoA reviewed the UT’s decision and found that the FTT hadn’t erred in law on the analysis that the film partnerships were trading, in fact they found that the UT had erred in law by remaking the FTT’s decision. The FTT had performed a multi-factorial analysis of whether the partnerships were trading, and although the FTT could have used better words, there were no leaps in logic and the UT hadn’t demonstrated any error in law, the FTT were entitled to come to the decision they made. The CoA couldn’t see any identifiable error in law regarding the FTT’s finding that the video games partnership wasn’t trading so dismissed the Operators appeal on this question.
On the question of whether the film partnerships were operated with a view to profit, the CoA overturned the UT’s decision as the FTT had demonstrated the evidence on which it found that the partnerships were operated with a view to profit, albeit on a lesser basis than one which the majority of evidence supplied by the Operators supported.
The CoA allowed the Operator’s appeal on the film partnerships.
The decision can be found at: Ingenious Games LLP & Ors v Revenue And Customs [2021] EWCA Civ 1180 (04 August 2021) (bailii.org)
While his partial success is good news for the taxpayers involved in the scheme, it still means that the investments they made into the partnerships, that were loss making, were not able to shelter their income tax charges by the disallowed 96%-97%. This has been an expensive endeavour for the investors as the legal fees will have been very high, the hearings at the FTT alone lasted around a year.
Please contact us if you have any questions on tax-avoidance schemes or have been marketed a scheme and you are unsure on its effectiveness. We are experienced with these issues.
