HMRC victorious in Supreme Court film tax battle

HMRC has won a long battle with a film scheme used by celebrities and sports stars to avoid tax, after the highest court in the land threw out its case.

The Supreme Court has dismissed an appeal from Eclipse 35 brought by its creator Future Capital Partners and 287 investors, who reportedly include former football managers Sir Alex Ferguson and Sven-Goran Eriksson.

The partnership has been involved in an ongoing dispute with HMRC since 2011, after the UK tax office found that Eclipse failed to actually conduct any trades, which is a prerequisite to qualifying for any tax relief.

Film partnerships became popular as a means of avoiding tax after Gordon Brown set up tax breaks for the industry in 2005. In 2012 officials launched a push to close such schemes in the belief that some had stepped over the line into aggressive tax avoidance.

The Telegraph reports that investors in Eclipse 35 put in £35m towards buying distribution rights to the Disney films Enchanted and Underdog in 2007. The purchase fund was then topped up by a Barclays loan facility that contributed another £790m. On the same day, the partnership sub-leased the rights onto another arm of Disney, thereby generating tax relief.

But HMRC denied Eclipse members tax relief to the tune of £117m, leading to the court cases.

Eclipse 35 had already lost its case at the court of appeal, which ruled in February last year that the scheme amounted to tax avoidance on the grounds that there was no trade being carried out.

The Supreme Court’s refusal of a final appeal could have huge ramifications for similar schemes.

“I’m afraid we’ve heard nothing that persuades us that the Court of Appeal went wrong in this case,” Lord Neuberger, president of the Supreme Court said.

HMRC executives have hailed the ruling as ‘a fantastic victory’.

Jennie Granger, HMRC director general of enforcement and compliance, said: “This is a fantastic victory for HMRC. It has significant ramifications for the 31 other Eclipse schemes and beyond.”

The Financial Services Compensation Scheme (FSCS) has received 140 claims from people in relation to advice given to invest in film schemes.

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Jamie Grossman

Jamie Grossman

Partner at Wilson Wright
Telephone+44 (0)20 7832 0444