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HMRC try to kill the british film industry

Investors in a financing scheme aimed at helping the UK film industry are being asked to repay "multiple millions of pounds" following a court ruling.
HMRC is pursuing investors in the Eclipse scheme, including celebrities, financiers and sports stars, for up to 20 times their original investment.
Courts ruled that the film investment partnership was in reality a tax avoidance scheme.
But an advisor to many of the investors said some of them now face bankruptcy.
Film industry investment
Nick Wood, a partner at Newport Tax Management, said: "There are a large number of people who have been left completely distraught.
"They have been given a three-month window to come up with what in some cases will be multiple millions of pounds."
The Eclipse partnership lost a Supreme Court appeal earlier this year over its use of tax breaks introduced by the government in 1997 to encourage investment in the film industry.
Now HMRC is demanding that investors repay their original investment many times over, because of the way the scheme was designed.
"Named and shamed"
BBC business correspondent Joe Lynam said that to make a £1m investment, an Eclipse partner might contribute only £20,000 of their own money and borrow the rest.
"The tax relief on the whole amount would have been up to £400,000, or 20 times what they had risked. Here, HRMC may seek to recover the full £400,000," he said.
Labour MP Margaret Hodge, who chairs the all-party group on responsible taxation, said HMRC was right to pursue investors.
"If somebody cheats the benefit system, they have to pay the money back and are named and shamed. If somebody cheats the tax system, they should be treated in exactly the same way," she said.

  • Not really. We're not talking about legit everyday investors wanting to make films, we're talking about films used as a vehicle for tax avoidance. HMRC give a very generous 25% of 80% of legit film costs as a tax credit, and not many industries get this kind of tax break. The tax credit was introduced to replace all the exotic sale and leaseback tax dodge schemes of the 80's. It's schemes like this that give the industry a bad name, and that makes it harder for real films to get investment.

    Don't cry for these people who were trying to claim £400k of tax relief on a £20k investment - they were never legit film investors.

    9 months ago
  • Very silly, disingenuous headline. How many of the films were actually British or even in need of funding? None of the "investors" were doing it for love of film nor any philanthropic reason. Having said that victimising people who are canny enough to use legal tax avoidance schemes for the sake of a few million is drawing attention away from the really lucrative tax havens and tax loopholes which will never be shut down so long as politicians are benefitting from them.

    9 months ago
  • Sounds more like theft to me... Anyone who is crying foul should have know of the risks of such investing. Invest £20k and get relief on £400k...? They got caught, plain and simple, doing something they knew they shouldn't be doing.

    9 months ago
  • Could you please provide the Eclipse slate of produced films for everyone's edification? Otherwise, I'm withholding an opinion.

    9 months ago
  • Some more on this here on the FT -

    www.ft.com/content/786319e2-ae5a-11e6-a3...

    (posted without comment...)

    Matt
    SP

    9 months ago
  • Link seems to be paywalled.

    Another - www.telegraph.co.uk/business/2016/04/12/...

    Matt
    SP

    9 months ago
  • Its hard enough to get any movie made in the uk as we all know and this just dosnt help bring investors or foreign production companys to the uk unless its one of the big players , it was ok while MP's got a little back hander? Loop holes get movies made this just another nail in the coffin for filmmakers , i know a few production companys who will be going bust cos of this which is not good for anyone , ive never had a real budget or finding from anyone and still make a few features to prove to myself it can be done and hopefully inspire othersits possible , i just think its ok when gov wants to get productions made in the uk but as soon as they have there money they want yo chase them for more i just think its crap sorry , i dont agree at avoiding the taxman as they make enough out of us but what gets me the pox is they chase the wrong people for tax invation , they need to help films get made in the uk even if it only promotes the uk ? Wehave some of the most creative people in the uk andsome of the best cast n crew in the world this just helps the big boys not the indies n b list movie makers

    9 months ago
    • I think that you are viewing this as if this was a legal investment scheme. There are tax breaks and then there is tax avoidance... I legally pay my taxes every year as do many others and we may or may not invest our hard earned surplus into schemes/funds to make a return. What this was offering was absurd by any standards and those people who participated would have known this. (Rub hands and keep head down hoping no one notices!!!)

      What hurts UK filmmaking are the schemes that defraud. Because once they are shut down, and they do get shut down (sale and lease back in the 80s got a very bad rap), it's hard to find alternatives.

      Where is your proof of government backhanders? If there are any then they need to be brought to light. But if your just throwing mud because your angry, then you're part of the problem.

      HMRC do offer some solid support of films in the UK. I'm sorry to hear that you personally haven't benefited from such funding, but that doesn't mean they are bad or the people who run them corrupt.

      I think this is scare mongering and only adds to the lack of understanding of what it takes to make films in the UK.

      9 months ago
    • You say you know several companies which will go bust because of this? Which ones? I'm curious which companies rely on finance from what looks a lot like outright fraud. There are legitimate ways to cashflow a feature.

      If you are a feature producer yourself, you've either benefited from the DCMS-administered tax credit, or not taken up a perfectly legal and incredibly generous tax credit! Talk with your accountant!

      I do agree that the UK has a lot of great talent - much of it works on studio movies, attracted by the tax credit and that's great over winter as all the facilities are available at good prices.

      9 months ago
  • This makes me pretty angry. This was obviously a tax avoidance scam and not an aboveboard, investor friendly plan designed to increase filmmaking in the UK. It's this type of thing that scares the shit out of any potential film investor. I don't feel badly for those that tried to game the system. Even my dog would be wary of "invest 20k and get a 400k tax break." That would be like the UK funding a film, and giving money made to private entities. But then again, the banks pulled that off beautifully.

    9 months ago
  • No listing of Eclipse Film Partners on IMDB. Films mentioned in The Telegraph are AVATAR and Disney films DISTRIBUTION rights. I must be thick, as I don't see any connection to UK film production. Unfortunately, I think that's ALL investors WILL see. IMHO.

    9 months ago
  • There is big difference between tax avoidance which is NOT illegal and tax evasion which is. However for www.MargeryBooth.com we're using EIS with which HMRC are still very happy and encouraging :-)

    9 months ago
    • My bad - I meant evasion, not avoidance.

      9 months ago
    • Ditto. I used the same terminology. Thanks, Franz.

      9 months ago
    • Evasion is a special case of avoidance, avoidance is the general case that includes illegal schemes. I guess if there's a court ruling, by definition it narrows down to evasion.

      9 months ago
  • Gotta pay for the nations essential infrastructure some how and tax is the only proper option. But the moral dimension arising from this discussion has yet to concider the fitness or otherwise of government to administrate or to tax. Interesting to think about in the context of Bens dystopia blog. The increasingly amoral and anarchic nature of about half the population combined with the brazen hypocrisy and unlawfulness of government resulting in emerging dog eat dog and the devil take the hind most socio-political attitudes currently on offer partly explains why many have concluded that it's everyman for himself.

    Interestingly there's been some as yet ongoing and unsettling, to the authorities, cases of people refusing to pay tax on the grounds that the government is a provably criminal organisation (the list of crimes perpertrated is lengthy and of the most serious; one could hardly make it up) and that therefore knowingly supporting them is a crime. As absurd as such a case may seem it's the thin end of giant wedge of dystopian reality that really ought to be the subject of any moral outrage.

    Just thought I'd throw a bit of additional contextual perspective in to the mix for your delictetion.

    9 months ago
  • I have sympathy with Johnnie's concerns and I can confirm Lynwood's fears that this scam 'is all that investor's will see' - at least some of them. Earlier this year, when I was raising post production funds through EIS for our feature Us and Them (2017) a very good friend of mine approached and angel investment group who he knew well. They laughed openly in his face and said they would not touch the industry with a bargepole any more, lest the HMRC move the goalposts.

    9 months ago
    • It's important to remember that this isn't a case of moved goalposts, they've been exactly where they are for a decade, this is a case of a scheme trying to help people avoid paying any tax (taxes which do indeed contribute to films getting made in the UK).

      9 months ago
    • @Paddy Robinson-Griffin Yes, it's more like hyperbole. Serious film investors do their due diligence and know the risks. VCs certainly do invest in film, if they know the market well. If they don't then they either do their due diligence and make a decision, or they steer clear.

      Not all investors will invest in property for example. But it doesn't mean property is a bad investment. It's the building itself and its potential to create revenue that makes it a good investment or not.

      Some investors may not even be looking for a return but offset tax in their businesses/other investments. They know whats a good scheme and what isn't and their own advisers will tell them what to steer clear of.

      9 months ago
  • I agree with my learned friends above that the tax scheme that has initiated this discussion was clearly a scam; those who subscribed to it foolishly forgot the golden rule, "if it looks too good to be true, it probably is too good to be true".

    Investors however are not a species with uniform characteristics. The accumulation of money in any particular place is not, as cliché's often suggest, evidence of wisdom. Quite often such accumulations are mostly a consequence of little more than luck in timing and other beneficial circumstances, followed by delusions of grandeur attributing the accomplishments of wealth to be equal to the virtue of wisdom. Where large sums have accumulated the force of financial gravity ought to make growth virtually automatic. It only takes idiocy and some pretty poor characteristics for such fortunes to to be lost and yet the numbers of such presumed doyens of business who have revealed themselves to be idiots is profoundly self evident. It was those idiot doyens of business who screwed it up for the rest of us by losing trillions of dollars through the stupidest of investments. Most of the great wealth in the domain of business and banking was not created by those currently controlling it. Success in one narrow line of enterprise is no guarantee of business wisdom in another.

    The industry of film and television includes a very diverse set of business models and economic environments, there's no singular generality. Investors in film include both the foolish and the wise. I imagine that in most cases venture capitalists seeking financial gain who know little or nothing about film as an enterprise would be wise to risk no more than they can comfortably afford to lose whatever the tax breaks on offer!

    9 months ago
  • few points of clarification here.

    1. This scheme was set in in 2007. I'm finding it hard to corroborate, but I'm pretty sure this was set up under the old Sale and Leaseback system. As I'm sure everyone here knows, this was disbanded and replaced with the current tax credit system because it was so open to abuse. The contentions issue is that the potential for abusing it was built into the system, so was essentially legitimated by the legislation. Pursuing people for exploiting those loopholes retrospectively is understandable, but given how little they do to stop much bigger tax loopholes being exploited, and how they basically bend over backwards to accommodate big corporations, is pretty frustrating. Especially as it's had the knock on effect of making film a no-go area for huge numbers of potential investors.

    2. £400,000 out of a £20,000 investment. The point that was being made was not that you could make 400k by investing 20k (which you couldn't) but that because the fund pretty much guaranteed a positive return on your investment (something that is still possible incidentally with SEIS and in some cases EIS) people BORROWED money to invest in the scheme, safe in the knowledge that they would make more back from the scheme than they would have to pay back to the loan company. They are therefore now in the position of having to pay back the loan twice - once to the loan company and once to the HMRC. Now it's quite hard to feel sorry for Alex Ferguson and Sven Goran Ericksson, but the real problem seems to me to be the people who set up tax loophole schemes and the financial advisors who encourage the use of them.

    3. Finally, the idea this has ANYTHING to do with investment in low budget british film is ridiculous. It has the knock on effect for the likes of us of making film much harder to convince people to invest in, but these people are just playing money games, and dont' give a flying fuck about the health of our industry.

    I think (:

    9 months ago
  • The only ways to create money, as opposed to selling ones time, are either to create an intellectual or material entity of deemed value, to invest in someone else's entity of deemed value or to print it. Schemes designed to create money through convoluted manipulation of selling debts and other sorts of financial artistry are what crashed the economy in 2008. I certainly take the point however that the government through HMRC and corrupt dealings have not penalised greed in an equitable way at all. Clearly we've a very long way to go before we attain any sort of fair and decent society.

    9 months ago
  • All the discussion above so far has been about taxes and schemes, but to paraphrase Cameron Crowe, NOT Cuba Gooding, "Show me the movies!"

    9 months ago
  • I have briefly looked at the ruling & most investors in the scheme would have been pre-warned it carried a degree of risk. A £400,000 tax break on say a £20,000 investment (figures mentioned above) is the exact kind of tax scheme designed to favour big business and wealthy individuals, NOT filmmakers & producers.

    I'm sorry to hear that it has not worked out for the investors, and to utilise say a £400K loss, the individuals would have needed income elsewhere of at least £500k to offset those losses.

    "Now HMRC is demanding that investors repay their original investment many times over, because of the way the scheme was designed.".... HMRC would usually only seek the original loss claimed by the participating investor in the scheme. i.e. the tax lost to HMRC/ or advantage to the tax payer as a result of the investment (of course some penalties & interest accruing).

    It appears that this scheme was designed to give unfair tax breaks, whereas a true tax break scheme for films goes into the production of the films often to benefit the production company.

    Will this harm British feature production?

    This particular scheme will yes. HMRC will tighten up its rules on legitimate schemes.

    9 months ago