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Film investors challenge tax demands
From the Financial Times of Fri, 19 Dec 2014 18:25:21 GMT

Investors accused of tax avoidance are mounting a legal challenge to demands for upfront payment by HM Revenue & Customs.

An application for a judicial review of the use of “accelerated payment notices” by the tax authority has been made on behalf of people who invested in three partnerships promoted by Ingenious Media, according to documents seen by the Financial Times. They claim the notices are unreasonable and illegal.

Members of Ingenious Film Partners 1 and 2, and Ingenious Games, have received demands for payment of the disputed tax related to their investments, ahead of tax tribunal rulings.

Individual bills range from tens of thousands to millions of pounds.

They are among the first group of taxpayers to have been sent such payment notices, which were introduced this summer as part of a clampdown on avoidance. HMRC is looking to reclaim £7.1bn of unpaid tax by April 2016.

The claimants are challenging HMRC’s power to issue the notices — which cannot be appealed — on several grounds, including that their disputes have not been resolved. The review will not address whether the arrangements were tax avoidance schemes.

Jason Collins, head of tax at law firm Pinsent Masons, which has brought the claim, said that the issuance of the notices might also have been invalidated by procedural errors. “HMRC missed deadlines and may be out of time now to act against these people.”

In November, MPs criticised the tax authority for being “unacceptably slow” to investigate a scheme called Liberty, which the public accounts committee said might have led to the loss of up to £10m in unpaid tax.

As well as seeking a judicial review, which can be brought on the grounds of illegality, irrationality or procedural impropriety, the Ingenious scheme claimants also want accelerated payment notices to be suspended until the case is dealt with.

Given that the notices demand full payment within 90 calendar days, the earliest recipients face having to raise and pay large sums of money very shortly unless the application is approved.

Tessa Lorimer, special counsel at law firm Withers, said she was not surprised taxpayers with payment of notices pending were seeking judicial review. “Given there is no right of appeal, there is not really any other route left open to them.”

Mr Collins said when partnership members invested originally, government incentives, such as film tax relief, were in place to encourage money into the UK’s creative industries.

“A lot of people feel aggrieved that, some 10 years after their investment, the government has changed its position and is now demanding tax without the right to appeal.”

Ingenious partnerships made initial losses, which could be offset against investors’ other income, thereby reducing their tax bills.

The promoter has consistently denied HMRC’s claim that these were deliberate tax avoidance arrangements, and is challenging the authority on three of its schemes — Ingenious Film Partners 2, Ingenious Games and Inside Track Productions — at a tax tribunal that began in November.

In a statement, HMRC said that while it did not comment on individual cases,“we are confident of our position on the accelerated payments legislation and we will be pressing to have any challenges to it resolved promptly”.

“We will be continuing to issue [APNs] in the interest of the vast majority of taxpayers who play by the rules.”

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