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Fergie and Sven's tax plan backfires

by Daniel Grote on Jun 25, 2012 at 08:14

Fergie and Sven's tax plan backfires

Manchester United manager Alex Ferguson (pictured) and former England manager Sven Goran Eriksson could be forced to pay more tax than they sought to avoid through an ‘aggressive’ tax scheme, as part of a HM Revenue & Customs (HMRC) clampdown.

The pair are among 289 investors in film partnership scheme Eclipse 35, run by Future Capital Partners. HMRC won a tribunal case against the scheme earlier this year, in a ruling that initially was thought to have denied the investors the £117 million tax relief they sought.

Investors, including former F&C Asset Management chairman Alain Grisay, put £50 million of capital into the scheme, and borrowed £790 million from Barclays to buy the distribution rights to two Disney films, offsetting the interest charges against tax. Disney agreed to lease the rights back in return for an annual payment over 20 years.

According to reports, HMRC believes it can not only block the investors’ claim for tax relief but also demand they pay tax on the licensing payments made by Disney, leaving them with a £250 million tax bill.

The news is the latest in a series of revelations about the tax affairs of the UK’s wealthy. Olympic gold medallist Chris Hoy defended his financial arrangements after The Guardian reported that he had received a loan from his own company. The paper said it was not clear whether the move, which is legal, resulted in a reduction in tax, but quoted a lawyer claiming it could be vulnerable to attack under disguised remuneration rules.

Hoy denied the arrangement disguised remuneration, adding the loan had been repaid and that the dividends taken to pay were taxed ‘at the highest rate’.

The Mail on Sunday reported that eight of the England football squad were invested in tax schemes, some of which had been challenged by HMRC in the courts.

The Times reported that HMRC was facing a 38-year backlog as it struggled to cope with 20,000 tax tribunal cases. It said MPs would investigate loopholes in the tax system. Writing in The Times, Public Accounts Committee chairman Margaret Hodge said some of the arrangements ‘wouldn’t look out of place in a banana republic’.

18 comments so far. Why not have your say?

Chartered Mark

Jun 25, 2012 at 08:46

2012. Not been a great year, has it Frrgie?

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Paul Boyd

Jun 25, 2012 at 09:02

Out of the Euros and back to a big tax bill,how unfair for our footballing superstars?LOL

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david knowles via mobile

Jun 25, 2012 at 09:12

Ha ha ha and they should get a substantial for trying to dodge tax in the place. Imagine what that money could have done to the UK films industry if they actually invested the money into making new British films instead of buying Disney.

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Paul Howard

Jun 25, 2012 at 09:13

Surely anyone with abit of commence sense could work out investing £50 million and borrowing £790 million is hardly a proper investment scheme?

Investor "I need tax relief as I am investing in a really risky scheme......"

Taxman "....thats sounds reasonable, how much of the investment is your own money...."

"...ohh, about 6p in the £1.00. "

CLICK

...."Hello, Mr Taxman, as you still there?"

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Happy camper via mobile

Jun 25, 2012 at 09:18

Ha, ha, ha, ha, ha. Such a shame that these overpaid, over adulated celebrities are getting their come upance.....

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James

Jun 25, 2012 at 09:26

Ahhh... that great socialist & Labour supporter, Fergusson.

Typical socialist hypocrite that highlights champagne socialism whereby the rich became even richer and the poor poor - great work from Blair, Brown & Ballsup.

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Martin Helstern

Jun 25, 2012 at 09:26

Let me see now ... yes that's how it goes "if you keep doing the same thing over and over yiou will continue to get the same results". Wake up England.

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Simon Mansell

Jun 25, 2012 at 09:51

I think there is a government conspiracy with regard to tax avoidance. We have seen the government through the FSA legislating and adjudicating without recourse to either parliament or the counts and now we see the Conservatives trying to do the same with regards to tax legislation.

For 83 years it has been clear that there is a distinction between “evasion” and “avoidance”, the former illegal and the latter legitimate.

“No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or his property as to enable the Inland Revenue to put the largest possible shovel into his stores”.

Source: Lord Clyde in his famous judgment in the case of Ayshire Pullman Motor Services V Inland Revenue Commissioners 1929

Cameron’s use of morality rather than legislation has made himself and the Conservatives a sitting Duck! My suggestion is to leave questions of morality to bearded members of the clergy

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Paul Howard

Jun 25, 2012 at 10:05

SImon - the question is - was the Investment Scheme a Legitimate Investment - or was it just a scheme designed to generate tax relief?

If it's the former - I totally agree and there is nothing wrong with them. If it's the latter - they shouldn't exist - pure and simple.

(There isn't any mention of hurdle rates - which the 'legitimate' schemes have - i.e. save X tax today BUT pay Y tax in Z years back).

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Hickky

Jun 25, 2012 at 10:51

I don't care what so called tax mitigation experts say, the regulations were put in place in order to increase funding for the British Film industry.

So when wealthy individuals, via their tax advisers place money in a scheme that subverts these rules and invests in a US film company, with a huge leveraged investment in order to obtain a even greater relief, they must pay the consequences.

Jail for the tax mitigation 'experts' who promoted these schemes, possibly under the old offence of treason.

Full recompense of taxes owed by the individuals, plus a 50% additional fine would ensure that anyone else tempted to enter into an unapproved scheme will think twice.

With all the film schemes, dodgy K2s and their ilk, the BBC and media have called them legal. This is untrue, the promoters call them legal, but subsequent challenges find they are not, so lets not kid ourselves.

The real irony about all this is the schemes are dreamed up by accountants and solicitors. If they are OK, then who benefits? Accountants, Solicitors and the promoters. Who loses? The rest of the British public.

If it is found to be evasion, who benefits? Eventually, the public purse, but in the interim the accountants will probably get paid to sort out their clients mess. The lawyers will get paid to defend the scheme, and prosecute the scheme on behalf of the Revenue. So its a win-win situation, with the only loser the state finances.

Why not declare any scheme illegal unless the Revenue gives it approval, and not allow any appeals in court against their position. Not possible? Our regulator works this way, so why not the Revenue?

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Bob H

Jun 25, 2012 at 10:53

Not going to get into the politics (and the obviously delicious gags one could make at other's decision making) but are the names of these people reported on in the various publications recently all shown legitimately in public records or has a breach of data protection contributed to our keen journalists' investigations?

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Dolores Chimichanga

Jun 25, 2012 at 11:06

Just go to Companies House data and search a name. On many of the film tax schemes the members are listed as partners in LLPs.

The information is in the public domain therefore.

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ANDY WOOLLON

Jun 25, 2012 at 12:07

Let's all be honest here, if we could all legitimately reduce the amount of tax we pay within the letter of the law, I'm sure that we would all jump at the chance!

The only reason we don't, is that most of these schemes require a certain (high) level of income and are therefore primarily only accessible to the wealthy and not us. And let's be frank, it smacks of double-standards when the very politicians getting on their high horses about this, are the very ones that are millionaires themselves and probably have their own tax reduction schems!

Our protestations are therefore really based upon the fact that we don't have the same sort of income as the wealthy do. But how many people if they were to come into significant money - lottery win, large inheritance etc would take advice to reduce their future tax bils..............most I suspect.

What's next in the firing line, the tax deferral abilities of an investment bond?

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Frustrated - York

Jun 25, 2012 at 13:08

I agree completely with Andy!

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Market Man

Jun 25, 2012 at 13:17

What of the Queen's Counsel who signed off on these 'arrangements'? None of these schemes are sold without a QC Opinion. These guys trouser £40k for a two hour session to tell you that it all works under the Law. I suggest Cameron goes after a few of the wigs in Chancery Lane if he really wants to question morality! We could start by seeing a list of which QC has signed off on this scheme and others. A list of the fees they've taken from the 'promoters' would quickly establish where the tracks under this gravy train come from and lead to!

>>Greedy promoter finds maleable QC who's happy to take a slug of cash to provide a clean opinion on a dodgy scheme which is then pimped round the town as 'QC approved'. The cash flows in, and is carved up between promoter, QC, a handful of shameless lawyers, accountants and IFAs.

Choo choo!

All's well until HMRC deny the relief. The only way out is for the QC and lawyers to issue more fee notes to defend the indefensible.

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Simon Mansell

Jun 25, 2012 at 14:16

@Market Man Jun 25, 2012 at 13:17

Lawyers give opinion rather than make statements of fact! Perhaps IFA's should take this approach although I doubt it would offer them any defence as they have long been outlawed by the UK regulators.

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Hickky

Jun 25, 2012 at 14:34

@ Market Man

If a QC states he feels the scheme does not comply, he trousers the advice fee and that's it.

If there is any sort of legal argument to support his compliant opinion he says it is within his understanding of the regulations and gets paid, then will be paid again to defend his opinion, if challenged. What does he have to lose? It always complies! When other lawyers are now saying they will sue advisers for professional negligence for recommending these schemes, can the QC that gave the opinion be sued for his negligence? Or do the advisers' due diligence regulations overrule this, so they can be sued, but the QC cannot.

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Hickky

Jun 25, 2012 at 14:43

@ Andy W

There is a shedload of difference between tax deferral of investment bonds and a K2, or non-risk film scheme.

The tax deferral rules are part of primary regulation, as are transfers between spouses and ISAs.

These schemes are cooked up by dirty rotten scoundrels who only want a part of the wealthy's cash. They have an opinion of a lawyer that it appears on face value to comply. That doesn't make it legal.

If I were to come into a small fortune, I would use approved tax planning that had been tested by case law, and was accepted by the revenue.

Everything else is tax evasion by another name.

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