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In Ingenious Games LLP & Ors v HMRC [2021] EWCA Civ 1180, the Court of Appeal (CA) overturned the ruling of the Upper Tribunal that the LLP film and video game tax scheme partnerships were not trading and undertaken with a view to profit, although the original claims for losses were still denied.

On Appeal to the First Tier Tribunal (FTT), an immense amount of documentation and evidence was meticulously scrutinised by the judges. In determining whether there was a trade, the Badges of Trade were considered in detail. It was held:

On this basis, the FTT disallowed 97% (ITP) and 96% (IFP2) of the losses due to incorrect valuations and being capital in nature. IG was held to not be trading and so had no available losses. 

HMRC appealed to the Upper Tribunal (UT) on the basis that the LLPs were not trading and did not operate with a view to profit. The LLPs appealed all of the FTT's decisions, including the trading and view to profit decisions as these should have applied to 100% of the expenditure, not just the 30%. It was held that:

The effect of the UT's findings did little to change the outcome for the LLPs, except that now all of the losses were disallowed.

The UT restricted any basis of appeal to the two issues of trading and view to profit and on this basis, the LLPs appealed to the CA.

The UT upheld the LLPs' appeals and restored the FTT's decisions. The decision by the FTT regarding IG being non-trading was upheld throughout.

Useful guides on this topic

Losses, trade losses and sideways relief
How can trade losses be utilised? What are the restrictions? 

Is it a trade, a business, or an investment activity?
Starting in business? Is your new or existing business a trade, a business or an investment activity? The distinction is very important for tax purposes. This guide summarises key issues for tax purposes.

Badges of Trade: Are you trading or not?
Are you trading, running a business, or just buying and selling investments? The 'Badges of Trade' are a set of indicators, built up over time by the courts, to decide when an activity is a trading or investment activity.

External links

Ingenious Games LLP & Ors v HMRC [2021] EWCA Civ 1180  - Court of Appeal decision

Ingenious Games LLP & Ors v HMRC [2019] UKUT 226  - Upper Tribunal decision

Ingenious Games LLP & Ors v HMRC [2016] TC05270 - First Tier Tribunal decision


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