High-profile investors including David Beckham, Wayne Rooney and Gary Lineker are facing tax bills worth a collective £700m over film schemes they invested in more than a decade ago.
In the latest chapter in a long-running legal battle with HMRC dating back to 2014, a tax tribunal has put further restrictions on the losses that can be reclaimed by investors in two Ingenious Media film partnerships.
The schemes were used to fund a number of films, including Avatar, Life of Pi and Shaun of the Dead, but HMRC claims they were used primarily to avoid tax.
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Last year, in a landmark ruling tribunal, judges ruled that the schemes were trading legally and with a view to making a profit, a key contention of the backers.
But they also said that losses attributed to the underlying investors – which alongside the current and former footballers include television presenters Jeremy Paxman and Ant and Dec, as well as City financiers – were excessive and "not allowable".
As such, the judges restricted tax relief to a maximum of 35 per cent of what was originally claimed.
In their latest judgement, says The Times, the judges have clarified that the bulk of the losses were in the form of "capital" rather than from what could legitimately be referred to as "revenue" – and so were not legally deductible at all.
Professional Adviser says this means that only four per cent of the tax rebates that were originally claimed can be retained.
The BBC adds that this means £420m of tax is now considered to have been "avoided". With interest this would amount to a final bill of £700m.
"Unusually, the tribunal judge said that he had reached his conclusion with 'misgivings and reluctance'," reports the Times.
Investors put a minimum of £100,000 each into the schemes, which combined made up either 30 or 35 per cent of the total investment for a given film.
The remainder was made up of funds from the film studio or another distributor, which was provided in the form of a loan. But early year losses incurred, which were tax deductible, were attributed in full to investors.
That meant, said the judges, that for every £35 invested a higher-rate taxpayer could recoup £32 in tax rebates.
In theory profits in future years would make this up to HMRC, but the tax authority claims that future profits were not being properly pursued, the scheme was bogus and the tax relief paid should be recouped.
A spokesperson for Ingenious said: "We strongly disagree with the tribunal's clarification... It is wholly unsatisfactory that the tribunal reached this decision with 'misgivings and reluctance'.
"We will be appealing the entire decision of the tribunal."
