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That sense of returning to reality with a nasty bump is currently being visited on thousands of people who invested in so-called film partnership schemes – and who are now being sent payment notices by HMRC.
In August the UK’s tax tribunal upheld the Revenue’s ruling that two film investment schemes, the Ingenious Film Partnership and Icebreaker, were set up to enable tax avoidance.
The schemes were complex and worked in different ways, but both allowed investors to claim more cash back in tax relief than they had invested.
Under new powers granted to HMRC in 2014, people who invest in schemes deemed to constitute tax avoidance are sent an ‘Accelerated Payment Notice’ demanding they pay back the disputed tax within 90 days.
Stand up and be represented
In many cases these demands will amount to thousands of pounds, presenting those who receive them with some tough choices.
Doing nothing is not an option, as if the tax is not paid within 90 days of receipt of the notice, a penalty of 5% of the tax is incurred. Additional 5% penalties will be levied if the penalty is still unpaid after a further five months, and then again eleven months after the original due date.
However those who find themselves in this position may want to consider making a representation to HMRC. This is effectively an appeal against the notice – and if successful, a representation can lead to a reduction or even a cancellation of the tax demanded.
Representations must be made on technical grounds – i.e not the question of whether the scheme itself constituted tax avoidance, but instead whether the individual’s circumstances meet the criteria for the tax to be accelerated.
The notice should be checked very carefully. If the amount demanded by HMRC is incorrect, there is a good chance the representation will succeed.
Buying time, but not a decision to take lightly
Someone receiving an Accelerated Payment Notice has 90 days from receipt of HRMC’s letter to either pay up or make a representation in writing.
Those choosing to make a representation need do nothing while HMRC is considering their submission. If they are lucky the Revenue will accept their representation and reduce or cancel the tax demanded.
If their representation is rejected by HMRC, they will then be given a further 30 days to pay the tax owed.
However, making a representation should not be used as simple delaying tactic. HMRC takes a very dim view of spurious representations.
This approach should only be taken where the individual believes – and can show – the tax demand is incorrect.
Films are only part of the story
Film partnership schemes are not the only investment vehicles being challenged by HMRC in this way.
Other investment schemes designed to capitalise on generous tax relief regimes – such as those offered to investors in enterprise zones or brownfield property development – have also been branded tax avoidance.
HMRC figures show that in the past two years it has issued more than 50,000 Accelerated Payment Notices, and investors in such schemes have paid more than £2.5billion to the Treasury.
Challenging such a notice is a nuanced and complex task, and with thousands of pounds potentially at stake, it shouldn’t be attempted without expert help.
If you have received an Accelerated Payment Notice from HMRC and are considering your options, contact us today.