Discovery assessments issued re film schemes in 2003-04

When I saw the headline in the Mail on Sunday today I assumed it related to the story I wrote about last week - that sideways loss relief tax avoidance schemes are being challenged by HMRC.

Such schemes were the natural successors of the old film partnership schemes. However it is these film schemes that are the focus of the Mail's story: Stars face massive payback demands as HMRC probes £2bn film tax loophole.

The paper reports that HMRC have been investigating film partnership schemes for a few years. And that investors have received tax demands in recent weeks on the basis that a specific 2003-04 film scheme was not trading on a commercial basis. HMRC suspect that is was intended as a tax avoidance scheme rather than a film investment scheme.

I am not surprised at such developments generally as I recall having reservations about much that was going on in this field at that time. What does surprise me however is to see all the focus on Ingenius Media (run by Patrick McKenna). Ingenius were generally regarded as one of the most reputable promoters of film schemes when I was considering such investments for clients around ten years ago.

If Ingenius are under attack then it's likely that many other promoters have also been fighting the taxman over the last few years. The Ingenius story makes the news of course because of the high profile names who invested in it. Such information has been obtained from the public record at Companies House as the respective investment vehicles are Limited Liability Partnerships.

In the light of news of what are, presumably, discovery assessments, we can expect at least one high profile case to be heard before the Tribunal to 'settle' the issue. Given the sums involved I would expect the outcome to be appealed so the final outcome will not be known for years.

This is clearly part of HMRC's efforts to scare off people from investing in overt tax avoidance schemes - even those where the 'avoidance' involves taking advantage of specific tax reliefs introduced to encourage risky investment.

This latest news also bears out the warnings I have been offering that such schemes are rarely as straightforward as the promoters suggest. And most of all, that it is invariably many years before the final outcome is known; ie: before the investor knows for sure that he can retain the tax refund he secured at the outset.

I have said it before and will say it again: These issues all justify the views of many accountants who do not want to spend time advocating such schemes to their clients. These accountants know that to do so without first understanding the issues and being able to explain the risks, as well as the benefits, would be unprofessional. And once the risks are fully understood only a small proportion of clients are ever interested and only a fraction of them finally go ahead. Most accountants have better ways to spend their time.

What's your view?

Previous relevant posts:

• HMRC challenge sideways loss relief tax avoidance
• HMRC confuse tax avoidance and tax evasion again
• Beware of HMRC spotlights - EBTs now included
• Were you wasting time advocating this tax scheme?
• The beginning of the end for structured tax avoidance schemes?
• Bending vs breaking tax rules