A tax avoidance scheme that created tax losses out of nothing for wealthy people and could have cost the taxpayer £120 million was rejected by a tax tribunal last week.
The wealthy members of the scheme claimed to be active partners trading in the creative industries, selling, for example, the rights to a song or an idea for a book. They claimed tax relief on greater losses than they invested in the partnerships. The return on the partners’ ‘investment’ was the tax relief, which was considerably larger than their cash contribution.
An HM Revenue and Customs (HMRC) spokesperson said:
HMRC has put in place generous reliefs to support genuine business investment and our tax reliefs for the creative industries work well, enabling the UK’s world-class film, television and video production companies to compete on the global stage.
But we will not tolerate abuse of the system by people trying to dodge their tax obligations. HMRC will continue to challenge in the courts and anyone who engages in tax avoidance schemes risk not only the high cost of these schemes but also lay themselves open to penalties and, potentially, prosecution.
The avoidance scheme was rejected by a First-tier Tribunal.