Film schemes – High Court decisions re tax reliefs
Many taxpayers have invested in film scheme partnerships. The High Court recently heard two HMRC appeals that will affect the tax reliefs available to investors in certain film schemes.
The first of these appeals related to Micro Fusion 2004 LLP which, in 2004, acquired a perpetual licence in a screenplay for a film called "Mrs Henderson Presents". The LLP’s tax return included a claim that it had incurred more than £13 million on production costs. It was crucial for these costs to be deductible so that the investors/members in the LLP could claim their tax reliefs.
HMRC disallowed the claim in its entirety on the basis that the partnership was not trading because it had effectively sold the master negative of the film to a distribution company. In a lengthy and complicated judgement the High Court ultimately agreed with the Special Commissioners and upheld HMRC’s rejection of the claim. The main basis for this decision was that the partnership itself was not carrying on a trade or business which consisted of or included the exploitation of films
The second appeal related to Halcyon Films LLP which had claimed a loss of more than £14,000,000 incurred on expenditure on the acquisition of three films. HMRC disallowed the claims. In this case the Special Commissioners found for the taxpayer and the High Court upheld the Commissioner’s decision. Investors in this LLP should therefore be entitled to their loss reliefs.