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HM Revenue and Customs (HMRC) has put around 600 film investment schemes under inquiry, as part of its ongoing clampdown on tax avoidance, according to reports.
The Times reported that HMRC referred to film investment schemes as a ‘£5 billion pound risk’ and that many of the schemes being investigated have been set up by Ingenious Media boss Patrick McKenna and Future Capital Partners founder Tim Levy.
The news that film investment schemes are a target for HMRC comes after prime minister David Cameron condemned comedian Jimmy Carr for his reported involvement in an offshore tax arrangement as ‘morally wrong'.
The Times reported that Levy treated IFAs who sold his investment schemes to stays on a luxury yacht during the Cannes film festival with €1,000 magnums of champagne laid on, skiing holidays, and trips to the Rugby World Cup.
It said that during Cannes 15 IFAs would be flown over at a time for 48 hours, before being replaced with another set.
Comments (25)
Quite apart from HMRC looking at the schemes I would like the FSA to look at the incentives and inducements part of this - us ordinary IFAs can't get so much as a cup of coffee from any provider without attending a seminar
08:36 on 21 June 2012
I have been expecting this kind of Citywire article for 7 years. For a long period I have been surrounded by IFAs who have done hundreds of thousands of pounds worth of business like this and coming back from Cannes with their tans, and their stories of £20,000 a night bar tabs picked up by Future.
And little boring old me has stayed in the office running my Truth cash flow planning scenarios for my retiring clients on a retainer, working out what their income is and whether they should pay their grandchildren's school fees.
I felt boring at the time (and poorer than my colleagues) but I don't think I need the kind of excitement that these guys will be in for. I can't imagine the conversations they are having with their clients at the moment!
08:47 on 21 June 2012
It always worried me when providers were offering this or that to go along with their Tax mitigation scheme..
The problem is - the 'honest' schemes (there are some) will likely get tared and feathered with all the dodgy schemes.
09:16 on 21 June 2012
See this for what it is. This is the news fodder to whip the public up into arms about nasty tax avoidance schemes before the introduction of the GAAR next year. As Cameron points out, these schemes are legal but unpalatable when the balance sheet is shot to pieces.
The counter argument is that without tax breaks of film funding, some fantastic British films would not get made. At its extreme, it could kill a large part of the creative output of the UK.
09:41 on 21 June 2012
There are 2 points with regard to this, firstly as Paul points out, there are honest schemes which have, as pointed out by Ian, enabled some fantastic British films (and I suppose some not so good ones too)... So this should not be stopped, just tweaked to protect the genuine benevolant donations from the unscupulous tax dodgers.
As for the other scheme being run by K2(?) and used by Jimmy Carr, well this needs to stop, if every employee and employer in the UK used such a scheme, the country would be in a total state. I always thought that HMRC had rules that meant even though an individual may be operating within the law, there actions were not within the spirit of tax legislation and therefore they would be entitled to go after payment...
My personal preference is for a simpler fairer tax system. Where all income (salary or investment) is taxed ad the same rate, regardless of how much you earn. With top execs being limited to a reasonable multiple of the average employee wage of the 80% lowest paid staff of the firm (including contract cleaners, catering staff and so on)... The only way that top execs would get top pay would be if their staff were also getting top pay (comparable to other firms)...
10:10 on 21 June 2012
I was offered such a scheme...and looking at the finer print I was theoretically able to avoid virtually all taxes with the savings being shared between me and the "creators" of the scheme. Even I found it too immoral to participate in. We`d all like to reduce our tax rates to a reasonable level, but not pay anything to the Govt is a bit obscene...
I also recall that, with all the disclaimers, it seemed that I would be taking the risk while the advisers would be taking their fee without recourse. I assume the other schemes were also like this so those who participated in the scheme may have to pay the original tax due plus not being able to recover the "tax savings" passed onto to the advisors.
Ouch.
10:46 on 21 June 2012
It's legal. Doesn't this just show how horrendously inefficient HMRC and the government is at closing loopholes? Instead of criticising those who take advantage of legal schemes, I would like to see senior government officials take some responsibility and act so that everything that is legally possible is "morally right." Oh and by the way hasn't HMRC investigated Ingenious a number of times before without finding fault?
10:49 on 21 June 2012
Like I said yesterday this is the "STOCK IN TRADE" of all financial services firms. Its how you make your money. Its why people let you through the door and take your calls and read your leaflets. ITS THE WHOLE DAMNED INDUSTRY. Dont chastise the recipient jail the providers and the advisers who peddle this stuff, if the government so dare. The hypocrisy of western politicians is staggering. I laugh in the face of all financial services advisers and providers,all so HEAVILY REGULATED!!! and still hated. !!!! HA HA
10:57 on 21 June 2012
DONT STOP THERE!!
11:13 on 21 June 2012
@ Mr Man
'Western' politicians?
Tut tut
11:14 on 21 June 2012
Well, isn't this a potmess! It really goes to show that advice to place clients into unregulated schemes, weather they are unregulated collectives, tax schemes, film schemes, property schemes are attractive to certain financial advisers because the earnings for them are greater than regulated schemes. However, if we give advice on either type of scheme, the advice is regulated.
So when clients lose money investing in film schemes having been advised to invest in them, do we pick up the tab?
Can Jimmy Carr demand from his financial adviser (he stated it was his FA who advised him to go into K2) monetary redress as the said FA failed to consider the reputational risk to his business, and the potential loss of income that will follow if disclosed to the public. Only the report will show. FSA, do your job and investigate his advisers.
11:28 on 21 June 2012
It seems that i may turn out to be a Labour suporter after Michael Meachers commons paper! God I cannot belive that i said that.
He stated that this would be for the individuals to prove that it was not a "wrong" scheme for tax aviodance and for the HMRC to agree to it before going in force..
Now that does make sense. After all many of these schemes do not come to light whereas in the future they are "lit up" before in force.
11:28 on 21 June 2012
@ Mr Man - While part of what yuo say makes sense, you should not generalise about all advisers and the entirity of the Financial Services sector in this way. There are a great many within the industry that are doing a very good job and who are doing it with honesty, integrity and morally. Yes they are making a profit, but that is not in direct conflict.
The part I agree with is that these schemes, the providers, the advisers and those that use them all need to be brought back in to line, from the moral perspective. For the clients, they knew they were using this scheme merely to avoid paying their dues, that's wrong (yes tax is too high, but it's the rule of the land and you should abide by that rule, even if the rulers of the land and their agents are incompetent). For the advisers, either big fines or perhaps in the worst offending cases, barred from advising. Providers, shut down and where possible their profits seized and used to finance local good causes to where they live.
Above all, the government need to simplify, clarify and ensure that there are no loopholes. I sympathise with the highest earners for the level of tax they are asked to pay, as nobody wants to see half the earnings lost to the taxman. But that is the way of the land, accept it or leave.
12:02 on 21 June 2012
It reminds me of those gilt-strip schemes years ago. At the end of the day, if the government can't draft the correct legislation, people will always find ways around it.
The tax system in this country is just too complicated. It's one of the most complicated in the world. Other countries have introduced "flat taxes" where there is just one rate. It's more efficient and easier to collect and probably drags in more money. I mean, look at how many people do HMRC employ and how much we pay to run that organisation. That is a scandal in itself.
12:18 on 21 June 2012
Who promotes all these tax avoidance schemes? Solicitors, Accountants IFAs? I guess the majority are promoted by the first two groups, as their core business is using the law and tax rules for their client's advantage. As FAs, our remit is more to do with tax planning. Using ISAs, Most tax efficient method of holding joint taxable assets, When and how to gift money to reduce potential IHT. This is tax planning.
Paying yourself and your wife minimum wage, and paying other profit as dividends to reduce NI is an accountants job (morally correct?). Solicitors advise on using the law to your advantage (again morally correct?). Both of these professionals are fee paid, not commission paid by their clients.
So, post RDR will our business have to rely on advice to our clients that can give them an immediate bonus in order to justify our fees? Perhaps RDR will increase the shady side rather than reduce it.
Thus, once again the FSAs statutory objectives could be breached.
12:43 on 21 June 2012
The inducement registers for these 'advisers' must make interesting reading! Conflicts of interest all around.
13:04 on 21 June 2012
Mr Man. Thanks for your insightful comments on this and two other articles I've just read. You seem to be MOANING FOR THE SAKE OF MOANING, which (along with your use of caps) makes it slightly difficult to TAKE YOU SERIOUSLY.
13:46 on 21 June 2012
Let me get this straight, The Labour Government under Tony Blair openly encouraged people to plough money into British Film Schemes. The providers could not operate one without a certificate from the government certifying that it was a qualifying film and it was eligable for tax relief.
I wonder if there will be any decenting voices from the opposition benches over this investigation, I doubt it very much.
The way the coalition government should really think this one through before going in with both feet - there may be some very red faces on those nice green leather benches.
Also with all the money that went into Films such as Avatar and Bend it like Beckham, are HMRC going to ask for all of this back from the film companies due to it being an illegal payment, because that is what they are suggesting.
If you think the MPs expense scandal was bad, if this kicks off we may need an election given the number of MPs that wiil have to resign - sorry silly me the ones that particiipated are now in the Lords
13:55 on 21 June 2012
@ Mr Man I laugh back at you, in fact:
I don't want to talk to you no more, you empty headed animal food trough wiper. I fart in your general direction. Your mother was a hamster and your father smelt of elderberries.
14:06 on 21 June 2012
@ David Cathcart - I am probably wrong, but I would have thought that HMRC would be asking for the money from the investors and not the film companies. It would then fall upon the investors to sue the film companies to recover their monies (if indeed any are due) as dumping money in the right film may have given a great return (I say may!!)
But then I am baffled as to who comes up with these schemes and why they are allowed to go on for so long. Using Jimmy Carr as an example, surely someone at HMRC was aware that he went from paying a large sum of tax to a small sum of tax, and yet was still very popular and visible on the telly...
14:10 on 21 June 2012
@Usually found sitting on the fence - thank you for your comments:
The main objective of the schemes were to providing funding for British made films. I think issue is that the film company could only receive this funding after having applied for and been successful in gaining a Qualifying British Film Certificate. The rules for this is very stringent:
1. Tax relief is available for British qualifying films. Films must either pass the Cultural Test or qualify as an official co-production.
2. Films must be intended for theatrical release.
3. Films, including those made under official co-production treaties, must reach a minimum UK spend requirement of 25%.
4. Tax relief is available on qualifying UK production expenditure up to a maximum of 80% of total qualifying costs. There is no cap on the amount which can be claimed.
5. The film production company (FPC) responsible for the film needs to be within the UK corporation tax net.
It is a bit ironic that there is a specialist government unit to deal with the corporation tax affairs of companies which are eligible for film tax relief. The unit, which is part of HM Revenue & Customs, works mostly with Special Purpose Vehicles established to make a single film.
So I am not saying there will be, but you can see my point in relation to HMRC attacking the very structure they were promoting - were does this leave the film companies.
May I add I am only talking her about Film Partnerships and S&LB schemes.
The revenue are usually quite tolerent of small tax schemes, but the K2 scheme given how it was abused by countless Accountants was bound to fail.
As a side issue, I wonder whether David Cameron would now like to denounce Zac Goldsmith (Conservative MP for Richmond Park) for being morally wrong when he took his £200M inheritance, following his father's death, while a non-dom and keeping the bulk of it in a Cayman Island account? At the time, Tory HQ said it was "a private matter".
17:49 on 21 June 2012
@ David Cathcart - Thank you for the info, just one small question... Do these investors not pay tax on earnings/returns from the films? So potentially at some point there will be taxes paid to HMRC, assuming commercial success.
As for K2, the only point behind it is to avoid paying tax with little risk, investment, benefit to anyone bar the interested parties (provider, adviser and client). Sooner the loophole is closed, the better.
14:24 on 22 June 2012
@Usually found sitting on the fence. You are absolutely correct. They are actually tax deferral schemes so HMRC will get the tax in any event that was owed and in addition any further tax produced through the film partnership.
Ironically HMRC are now collecting tax a 50% rather than 40% which was due on the original amount deferred. So whats the problem - HMRC receive the tax they were due anyway and along the line the rate went to 50% so they get 10% more ????
15:00 on 22 June 2012
Nothing illegal has taken place with these schemes. Simply tax advisors far cleverer than HMRC have exploited the flaws in the tax rules.
As for politicians and journalists discussing morals!!!! Black....pot....kettle.
There is always the possibility that Jimmy Carr et al might spend their tax savings on UK-sourced goods and services and property built by UK tradesmen (thereby generating tax revenues).
Whereas HMRC simply collect (unnecessarily high rates of) tax on behalf of the government who subsequently waste large parts of it on: pointless overseas wars, over-generous state benefits, aircraft carriers without aircraft, dubious foreign aid programmes, civil servants' grossly inflated wages & pensions, tax-breaks on inefficient wind farms etc etc
Remind me again who is morally repugnant?
10:20 on 24 June 2012
The Labour Government encouraged people to invest into British Film Schemes and gave them tax incentives to do so.
Whether a particular client's investment actually obtains the tax relief is in the hands of HMRC, so while the scheme may well be legal, it may not be effective for every investor.
We now have some bandwagon jumping lawyer (Guilty until Proven Innocent Inc.) threatening to sue all advisers who sold a particular scheme regardless of whether their files are compliant.
Any adviser doing his job correctly - fully informing his client of the potential downfalls - has nothing to fear.
Of course any adviser who is not compliant and who can't pay up will have his liability passed to the FSCS.
17:10 on 28 June 2012
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