An investment firm that persuaded celebrities, sports stars and business leaders to invest in controversial film partnership schemes will on Monday launch an appeal against HMRC that could cost the taxman up to £1bn.
Stars from the worlds of sport and entertainment, including David Beckham, Ant and Dec and Jeremy Paxman, are among those who put money into investment schemes run by the Ingenious Group, a financing company that funded more than 60 films including Avatar and Brooklyn.
In what is set to be the longest tax tribunal appeal ever, Ingenious will fight to overturn the court’s decision that HMRC was correct in deciding that the investments should not give rise to tax relief for their investors.
Ingenious, which said it was offering legitimate investment in the film industry, has been accused by the Revenue of tax avoidance, with a former HMRC boss describing its schemes as “scams for scumbags”.
An estimated £620m worth of tax relief was claimed by investors, which, combined with interest, means £1bn is at stake if HMRC loses the case.
Ingenious will be “throwing the kitchen sink” at challenging the original court decision on eight grounds, according to an observer. The tribunal appeal is expected to last five weeks.
About 2,000 people invested in the three limited liability partnerships (LLPs) that are the subject of the appeal – Inside Track films, Ingenious Film Partners 2 and a partnership set up to make computer games, Ingenious Games. A further five Ingenious LLPs will also be subject to the judgment.
Linked to the appeal are other multimillion-pound cases against banks, advisers and individuals, which could be affected by the tribunal’s decision.
As well as household names, many high-flying City workers, including Charles Randell, the chair of the financial watchdog the FCA, also invested in the schemes. Randall said he repaid more than £100,000 to the taxman after it challenged Ingenious Film Partners 2 LLP.
The LLPs were launched more than a decade ago and attracted millions of pounds in investments. One investor put in £30m across the schemes and several had stakes of more than £5m each.
The LLPs were marketed as tax efficient but many of those investors have been hit with large bills after HMRC determined that they did not give rise to the reliefs being claimed.
This decision was challenged by Ingenious and in 2016 a tribunal made a decision that led to both sides claiming victory. This was later clarified, with the judge ruling that none of the tax reliefs were allowable.
In the Ingenious Film Partners 2 LLP, for every £36 invested by the customer a further £64 was borrowed and invested, and £100 was put in by an Ingenious-related company.
In the early years the films that were being produced cost money, and this allowed Ingenious to write down their value and meant investors could claim tax relief on their investment. The loan element meant that the relief claimed matched the sum they had put in.
Three law firms, Stewarts Law, Peters & Peters and Mishcon de Reya, are taking claims worth an estimated £220m against Ingenious and other parties involved in the scheme to recover the money investors have repaid the taxman.
Those being sued range from the financial advisers who they say mis-sold the investments, to banks that lent money to Ingenious, enabling them to make the losses.
Big banks including Coutts and UBS are among those being pursued over claims that their advisers sold the scheme without giving proper warning of the risks involved, while HSBC is being sued by investors who say that it was in a conspiracy with the firm over loans.
David Pickstone, a partner and head of tax litigation at Stewarts Law, said his firm was acting for more than 250 clients suing Ingenious for fraud in the high court in relation to these schemes in an attempt to recover £100m of losses.
“If Ingenious are successful in their appeals, then some of our clients’ losses might reduce. However, it is very unlikely that our clients’ losses will be extinguished,” he said.
“These issues have been affecting their day-to-day lives for many years; they are understandably keen to avoid any further delays and they are determined to hold those responsible to account.”
HSBC’s role as a lender to four of the investments is under scrutiny in a case brought by Stewarts Law, representing investors reported to include the Rangers manager, Steven Gerrard, and Andrew Lloyd Webber.
The case accuses the bank of conspiracy over a loan facility it set up with Ingenious, supposedly to fund its activities alongside film production.
The investors argue that the money was not available to be used and that they did not know the bank was involved, instead believing it was being lent to them by Ingenious.
Ingenious is expected to argue that the original tribunal made mistakes in analysing the contracts between Ingenious and the film-makers, and in its assessment of whether the LLPs were trading with a view to profit.
It has previously argued that the film partnerships in question have generated £1bn in taxable income for the Treasury, and that they will bring in another £1bn over the lifetime of the films that were funded.
An Ingenious spokesman said: “It would be inappropriate for us to comment at this point in the appeal process.”
In 2016, a court found that the Revenue had breached its duty of confidentiality when a senior executive gave an off-the-record briefing to the Times in which he described film investment partnerships as “scams for scumbags”.