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England football managers face huge tax bills over film scheme

Hundreds of high profile figures, including bankers, celebrities and businessmen face bankruptcy from involvement in tax avoidance scheme.

England football managers face huge tax bills over film scheme

Hundreds of high profile figures, including bankers, celebrities and businessmen face bankruptcy from their involvement in a huge tax avoidance scheme after HM Revenue & Customs (HMRC) demanded they repay up to 20 times the amount invested.

A total of 780 investors put £2.2 billion into film investment schemes, according to The Times, which names Alex Ferguson, the Manchester United manager, and former England managers Sven-Göran Eriksson and Glenn Hoddel, among the investors now on the hook.

Last week HMRC told tax advisers it would issue tax payment demands amounting to large multiples of the amounts invested. For example a £200,000 investment could become a £2 million tax bill.

The Eclipse film schemes offered the chance to shelter income tax via a process that involved buying films and renting them back to Hollywood studios.

In April this year the Supreme Court upheld a judgement that one of the biggest partnerships, Eclipse 35, was a tax-avoidance scheme. HMRC has used that judgement to issue demands for investors in the other 38 similar partnerships.

Tax breaks for films were introduced in 1997 and had supported £500 million of UK productions by 2000.

Though all structured slightly differently the Eclipse schemes, designed by HSBC, all involved claiming tax relief on interest payments.

A typical investor in Eclipse 35 put in £185,000 and took out a loan of £815,000, giving a total investment £1 million. With that they would prepay 10 years’ worth of interest on the loan used to buy the film. This would generate a £1 million loss. The loss is what was used to reduce the investor’s income tax bill. The payments from the film studio, made to rent the film back from the partnership, would help pay off the loan.

The reason HMRC’s repayment demands are so high is because it is demanding repayment of the full amount generated by the scheme even though the studio payments went to paying off the loan.

One investor told The Times that he had invested £50,000 and taken out a £1.1 million loan. He said: ‘I am paying back four times the capital I invested and I still have to pay tax on the income in future years. A fellow investor in my scheme, this is going to bankrupt him. I started to mitigate.’

An HMRC spokesman told the paper: ‘The majority of schemes simply don’t work.’

Facing bankruptcy

Nick Wood, an adviser representing hundreds of investors in the Eclipse scheme told the paper: ‘I think there will be people potentially jumping off bridges. My expectation is, out of the 780 people involved, I’d think it highly likely that up to 600-700 would go bankrupt. At least 70 per cent would be forced into bankruptcy.’

Demands are expected to be sent out by HMRC within two months. Members have 90 days to pay.

Some of those affected are looking at whether tax officials can be held criminally accountable if, as a result of unlawful tax demands, any investor commits suicide.

Eclipse is expected to seek a judicial review HMRC’s decision to issue these charges.

In 2014 Stephen Gale, a partner at the City law firm Herbert Smith Freehills who was a member of two Eclipse schemes, took his own life after learning he was being investigated, a coroner’s court heard. The Times said the named investors declined to comment.

However the paper said there was no evidence that any of the investors it named were in financial difficulties.

In a statement to the Financial Times HMRC said it recognised that some people would face 'life-changing bills'.

It said: 'HMRC has made clear that, if people consider they will have problems in meeting their tax bills, they should talk to us as soon as possible. We will discuss with people, in light of their individual circumstances, whether payment arrangements may be appropriate.

'HMRC works closely with individuals caught up in avoidance schemes to help them resolve their tax affairs. Where people face genuine hardship we will always discuss payment arrangements to make the settling process more manageable.'

7 comments so far. Why not have your say?

george renshaw

Nov 21, 2016 at 18:14

After Brexit and Trump, this is a wonderful morale booster. Maybe there is a God after all!

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HMRC Are Spiteful via mobile

Nov 21, 2016 at 19:26

There is absolutely no need for HMRC to calculate tax due on 10-20 times the amount invested. By declaring the schemes unworkable they could just set the precedent, collect monies hitherto paid out in relief plus interest, and at a push, a small fine. At the end of they day these people took professional advice and now they are going to be ruined. Is that proportionate? I don't think so.

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Nov 22, 2016 at 08:16

Hard to have too much sympathy for those involved. Sheer greed on their part even trying this. Just hope the people who actually pay their taxes don't end up footing a huge legal bill when this comes to appeal.

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george renshaw

Nov 22, 2016 at 10:22

I agree, Angry, and I hope HMRC doesn't cave in as they have in the past.

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cliff aner

Nov 22, 2016 at 12:35

I think the heaviest penalties should be directed at the firms who invent these schemes and suck people in.

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graham t

Nov 22, 2016 at 15:47

surely it is the advisors who 'should be jumping off bridges'. Or at least being thrown off them.....


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Nov 22, 2016 at 16:26

George and Angry : totally agree !!!

It will be interesting to see who gets caught out and what their whingeing excuses are .

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