Stars face hefty bill over film tax breaks – don’t be fooled by the smoke and mirrors

There’s a big piece in the Sunday Times today about how HMRC is clobbering celebrities who used tax saving methods to make the most of their income – I say: smoke and mirrors.

Stories like this take the heat off Amazon.co.uk (paid just £3m tax on sales of £4bn), Nero (paid no tax on £40m profits) Johnnie Walker (parent company pays just over £2%tax) Starbucks (paid just £15m in corporation tax in 5 years) Vodafone (paid no corporation tax in the UK last year) Apple (paid less than 2% tax on profits outside the US).

It’s much more attractive to have a single human target – and a celebrity is fantastic – but we are really talking small amounts of cash here.

This looks like HMRC playing hardball, but it’s just smoke and mirrors – and while our tax attention is misdirected the big boys bag billions.

Here’s the article:

WHEN the television presenter Davina McCall was asked by a newspaper in 2013 about her financial affairs, her response was categorical.

“We have a financial adviser with whom we meet twice a year. We don’t do risky investing,” she said. “My motto has always been to do normal, legal saving. I am not interested in massive, dodgy schemes or tax avoidance, or any of that.”

The Sunday Times can reveal, however, that McCall, who has presented shows including Big Brother and The Jump, invested £150,000 more than a decade ago in an investment venture that is the subject of a legal challenge by the taxman over alleged tax avoidance.

Ingenious Media, the company behind the investment schemes, denies that its purpose is tax avoidance. It said last night that it “remains confident” it will succeed in its dispute with HMRC.

If the taxman wins, however, and McCall has not already settled, she could face a hefty bill to repay the saving, a decade of interest on the sum and, potentially, a penalty. So might more than 100 other well-known investors.

McCall was unavailable for comment last night.

After the humbling of the comedian Jimmy Carr, whose tax arrangements were described by David Cameron as “morally wrong” when his avoidance emerged in 2012, 140 sports stars, entertainers and business tycoons who, like McCall, channelled money into the Inside Track Productions film partnership in the tax year to April 2003, may have cause for concern.

The minimum capital payment for investors was £50,000, a sum paid by figures including Michael Vaughan, the former England cricket captain, and the broadcasters Anne Robinson and Jeremy Paxman. The singer Annie Lennox invested £500,000.

In return, they received the right to a tax break equal to the same sum and a slice of the profit made by films including the Oscar-nominated Vera Drake and Dear Frankie, which starred Gerard Butler.

Many chose to invest six-figure sums in the venture, which was one of the earliest to take advantage of a favourable tax regime created by the then chancellor Gordon Brown.

It entitled investors to save tax on their earnings, particularly useful for people with short careers at the top.

Those who took advantage included three former international footballers, Jamie Carragher, Jonathan Woodgate and Emile Heskey, who could have saved £464,265, £131,657 and £131,635 respectively; and Sir Crispin Davis, a non-executive director of Vodafone Group, who secured the right to a tax break of £750,000.

Geri Halliwell and Melanie Chisholm, two members of the Spice Girls, secured the right to tax breaks of £800,000 and £100,000 respectively, while the Liverpool footballer Steven Gerrard invested £386,585.

Chisholm said this weekend that she had “contacted HMRC and has settled all outstanding claims”.

Simon Fuller, who managed the Spice Girls and created the television talent show Pop Idol, could have saved £1.66m but the biggest individual investor was the pop singer Robbie Williams, who secured the right to a £2m tax break. Ingenious, the firm behind Inside Track, whose members’ payments have been seen by The Sunday Times, says that it is a blue chip investor and a mainstay of the British film industry.

Its chief executive, Patrick McKenna, 58, has built a personal fortune of £500m, according to The Sunday Times Rich List.

When McKenna was named chairman of the National Film and Television School, the culture minister, Ed Vaizey, hailed his “proud history of investing in the UK’s creative industries” and congratulated him for “global success stories including [the films] Avatar and Life of Pi”.

Ingenious’s other film credits include The Best Exotic Marigold Hotel, Girl with a Pearl Earring, Shaun of the Dead and Hot Fuzz.

Leading figures from the film and television industry also sank their money into Inside Track.

Peter Fincham, director of television for the ITV network, and Denise O’Donoghue and Jimmy Mulville, co-founders of Hat Trick Productions, all could have saved £100,000, while Eric Fellner, co-chairman of Working Title films, could have saved £500,000.

Relations between Ingenious and HMRC were initially harmonious.

After media reports in 2004 that the taxman had met industry figures to discuss particular film schemes, John Boyton, of Ingenious, wrote to investors that “at no point in any of our meetings with the Revenue . . . have they given any indication whatsoever that they are anything other than fully supportive of Ingenious Film Partners.

“We have gone to great lengths to ensure that both the Revenue and other government departments and ministers know how the partnership operates.”

But a bruising encounter between McKenna and Margaret Hodge, chairwoman of the Commons Public Accounts Committee, in December 2012 illustrated how the climate had radically changed.

“When I was culture minister [in 2009-10], I used to consider that you played an important role in supporting the creative industries,” Hodge told McKenna.

“I accept that you were doing some legitimate business, but I now feel that you were using it, on the whole, to see how you could help your clients avoid tax.

“You may say that is legal. I think that it’s immoral.” McKenna insisted that “we [Ingenious] are not involved in the business of tax avoidance”, although he conceded that three of his biggest film partnerships had been under investigation by the taxman for seven years.

He has accused HMRC of failing to deal with its investigations “in a timely and proper way”.

Full article at the link below.

Source: The Sunday Times.