In Ingenious Games LLP and others v HMRC [2016] UKFTT 521 (2 August 2016), the FTT dismissed in part the appeals of film LLPs, which were claiming tax losses.
The appellants were members of film LLPs, whose activities included media consultancy and corporate finance, film and TV investment, etc. Those LLPs had incurred losses and the appellants claimed that these should be set against their other taxable income. HMRC had denied the claims.
The first question was whether the LLPs had carried on a trade with a view to profit. The UT accepted that the complex structure adopted for the business model of the LLPs had been devised to deliver enhanced tax losses to their members. However, this did not denature the trade carried on by the LLPs, except for one of them, which had had no real involvement in the creative input or evaluation of the merits of the projects. As to the expectation of profit, the UT noted that although the members were hoping to obtain tax relief on 100% of the expenditure, the LLPs only put in 30% of the costs and were entitled to only 30% of the net profits. On that basis, a profit was not unrealistic. Similarly, the UT found that the only economic burden suffered by the LLPs was an outflow of 30% and that expenditure was incurred wholly and exclusively for the purpose of the LLPs’ trades. Finally, the profits of the LLPs had not been computed in accordance with GAAP, as the expenditure had been 30% and not 100%.
Two appeals where therefore partly allowed, whilst the third appeal (by the LLP which had been found not to trade) was dismissed.
Why it matters: These appeals were lead cases in relation to a further five appeals by other Ingenious LLPs. With interest and penalties (if applicable), the total amount at stake was £1bn. This decision is a reminder that taxpayers are entitled to arrange their affairs in a tax efficient way without denaturing their business activity.
In Ingenious Games LLP and others v HMRC [2016] UKFTT 521 (2 August 2016), the FTT dismissed in part the appeals of film LLPs, which were claiming tax losses.
The appellants were members of film LLPs, whose activities included media consultancy and corporate finance, film and TV investment, etc. Those LLPs had incurred losses and the appellants claimed that these should be set against their other taxable income. HMRC had denied the claims.
The first question was whether the LLPs had carried on a trade with a view to profit. The UT accepted that the complex structure adopted for the business model of the LLPs had been devised to deliver enhanced tax losses to their members. However, this did not denature the trade carried on by the LLPs, except for one of them, which had had no real involvement in the creative input or evaluation of the merits of the projects. As to the expectation of profit, the UT noted that although the members were hoping to obtain tax relief on 100% of the expenditure, the LLPs only put in 30% of the costs and were entitled to only 30% of the net profits. On that basis, a profit was not unrealistic. Similarly, the UT found that the only economic burden suffered by the LLPs was an outflow of 30% and that expenditure was incurred wholly and exclusively for the purpose of the LLPs’ trades. Finally, the profits of the LLPs had not been computed in accordance with GAAP, as the expenditure had been 30% and not 100%.
Two appeals where therefore partly allowed, whilst the third appeal (by the LLP which had been found not to trade) was dismissed.
Why it matters: These appeals were lead cases in relation to a further five appeals by other Ingenious LLPs. With interest and penalties (if applicable), the total amount at stake was £1bn. This decision is a reminder that taxpayers are entitled to arrange their affairs in a tax efficient way without denaturing their business activity.
