Investors in alleged tax avoidance scheme face HMRC squeeze
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The UK tax authority is using new powers to turn the screw on investors in alleged avoidance schemes.
People who bought into three partnerships promoted by Ingenious Media, an investment company, have received letters giving a final deadline to settle hundreds of millions in tax that HM Revenue & Customs says they owe.
Some have also received the first of HMRC’s so-called accelerated payment notices, which demand upfront payment of the disputed tax.
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These notices, issued to many investors in Ingenious Film Partners 2 last week, demand full payment within 90 days, unless a settlement is reached by the end of this month.
For many of the 1,300 past and present scheme partners – who include Sam Laidlaw, chief executive of Centrica and Dame Clara Furse of the Bank of England’s Financial Policy Committee – this could mean having to pay by early January.
Including interest payments, individual bills could run into millions, depending on the size of the investment – the minimum initial sum was £36,000.
“If you receive one of these notices, you cannot ignore it,” said Michael Avient, personal tax partner at accountants UHY Hacker Young.
Over the next 18 months, HMRC is issuing accelerated payment notices to 33,000 individuals and 10,000 businesses that have taken part in arrangements it considers tax avoidance vehicles. The authority is looking to reclaim £7.1bn of unpaid tax.
“The purpose of the notices is to get cash to the exchequer as soon as possible,” said Tina Riches, national tax partner at accountants Smith & Williamson.
Investors in Ingenious Film Partners 2 also received a letter from HMRC last month advising them that the opportunity to settle would be withdrawn on October 31, before a tax tribunal hearing about their scheme.
Participants became directors of partnerships that made losses which could be offset against their other income, reducing their tax bills. Ingenious denied HMRC’s claim that this was a deliberate tax ruse.
Appeals in the cases of three partnerships – Inside Track Productions, Ingenious Film Partners 2 and Ingenious Games – are due to be heard by the tribunal on November 3.
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The removal of the settlement option “probably sets a precedent for investors in schemes coming up to litigation,” said Martin Taylor, head of client relations at Rebus Group, a claims management company. “If they are entering litigation, it wouldn’t make sense to have a settlement opportunity on the table.”
Ms Riches said HMRC will have been keen to issue accelerated payment notices before the tribunal hearing to avoid disputes about whether these debts were tax debts. “If Ingenious were to win, [HMRC] would appeal but it would be difficult to justify the notices.”
While recipients cannot appeal against a notice, they can request that HMRC reconsider the amount in question, extending the deadline for payment by up to 30 days. Late payment may incur a penalty of 5 per cent. Those who are unable to pay are encouraged to contact HMRC.
Ingenious, which has funded films including Avatar and Life of Pi, warned its scheme investors in a letter in July to expect tax demands from HMRC.
The investment group did not want to comment on these letters but reiterated that “Ingenious film partnerships are not tax avoidance schemes. They are commercial production partnerships that have produced scores of successful films.”
HMRC said taxpayers who have remained in avoidance schemes, “are being given a last chance to withdraw and settle”.
