Last week, the Supreme Court sided with HMRC over a film tax dispute. Tod Davies explains how two taxpayers - Mr De Silva and Mr Dokelman - along with many others, will now have to pay their taxes; an estimated £1 billion in revenue for HMRC.
They’d claimed tax relief on losses made from investments in various film investment partnerships. The partnerships were marketed tax avoidance schemes, aimed at accumulating trading losses and setting them off against personal income of previous years, HMRC told the Supreme Court.
The dispute started when HMRC decided not to allow these losses to set off tax on other income. The taxpayers judicially reviewed this decision, based on a technicality: that HMRC had made a procedural error in its tax inquiry. They asserted that HMRC was entitled to inquire into their claims, but only under a specific statutory provision – which had a time limit that had, conveniently, elapsed. The Supreme Court dismissed this argument, with one judge saying that the technical arguments in the case left him ‘with a sense of total unreality’.
The decision also has implications for the ‘accelerated payment notice’ (APN) regime, an initiative introduced in 2014 to crack down on aggressive tax planning. The system was designed to remove the cash flow advantage of a taxpayer holding onto disputed tax, sometimes for years, while cases were investigated. If the Supreme Court thought this was a flawed approach, HMRC risked losing many other disputes.
Despite this latest case, HMRC remain subject to several challenges and appeals over their use of APNs. The pending Court of Appeal judgment in Rowe v HMRC – heard in the summer – is eagerly anticipated.