HMRC can clock up another victory in tax avoidance litigation. The Court of Appeal has dismissed an appeal by the Eclipse Film Partners No 35 LLP (Eclipse 35), upholding the earlier findings of the FTT, that it was not carrying on a trade. 

Eclipse 35 was a film partnership was set up to secure income tax relief for its investors in 2006/07. It entered into a complex set of transactions with the Disney Group of Companies to licence to film rights and sub-license rights to distributor.

Under the financing arrangements, members of the LLP advanced small sums of their own cash (which were largely spent on advisers' fees) and took loans from Barclays Bank in order to contribute to the LLP's capital. The members claimed an estimated £293 million in loan interest; almost three times the amount that they invested.

According to the findings of the FTT, the mechanics of the scheme meant that the main risk centred on Barclays' solvency, and the main business activity of the LLP was of investment. There was also the possibility that the LLP could obtain Contingent Receipts, whilst this activity could be treated as trading, in real and practical terms it was insufficiently significant to the business as a whole and so the FTT denied tax relief on the basis that the LLP was not carrying activities that amounted to a trade.

The case went to the UTT and finally to the Court of Appeal. The case has continually made the national press because a number of celebrities invested large sums in order to obtain tax relief.


Eclipse Film Partners No 35 LLP v HM Revenue and Customs [2015] EWCA Civ 95 (17 February 2015) 

Upper Tier Tribunal decision: Eclipse Film Partners No 35 LLP [2013] UKUT 0639 (TCC)

 First Tier Tribunal decision: Eclipse Film Partners No 35 LLP TC 01963