Not possible to assign film scheme income

In Thomas William Good v HMRC [2023] EWCA Civ 114, the Court of Appeal (CoA) found that a taxpayer who assigned his income from a film scheme income to another, remained taxable on the underlying income: as he was still entitled to receive the income as he had retained a benefit.

• The appellant, Mr Good, entered into a film rights scheme in 2007.
• The initial acquisition of the film rights was funded by a lump sum of about £300,000 (21%) paid by Mr Good and a loan (79%) offered by the scheme operators.
• The sale of the film rights gave rise to a fixed element on income, the MAP, and a variable element that represented a proportion of the gross receipts.
• The MAP amounts were intended to cover the cost of the interest payments. The MAP and interest payable were meant to net off for tax purposes and other losses were to be available for sideways relief.
• As part of the scheme, Mr Good assigned his rights to the MAP income over to the lender.
• HMRC issued Discovery Assessments for 2010/11, 2011/12 and 2012/13 with a total Income Tax liability of £180,000. Earlier tax years are still under enquiry.
• By the time the case came to the CoA, it was accepted that the scheme did not work. The losses generated were not trading losses and so were not available for sideways relief. The interest payments were not tax deductible.

An appeal was granted to the CoA on the basis that the appellant was not entitled to the MAP income, having assigned the right and so not taxable.

• s.611 ITTOIA 2005 states that a liability will be imposed on any person 'receiving or entitled to the [film] income'.
• The CoA held that the person entitled and the person receiving could be two different people and the legislation was intended to catch both. This is anti-avoidance legislation aimed at casting a wide net to catch those involved in Film scheme arrangements.
• The assignment of the MAP did not prevent Mr Good from being entitled to the payments. He received a benefit from the assignment, which was the payment of the loan interest. Moreover, the assignment was theoretically reversible once the loan had been repaid. Lord Justice Snowden, in his decision, went further to state that Mr Good had merely made an equitable assignment of the MAPs but had retained legal title.
• It was also found that there was no need to take a composite view of the transactions as a whole. There was no commercial unity of the transactions as in IRC v Scottish Provident Institution [2004] UKHL 52 and Ingenious Games [2019] UKUT 226 and they did not cancel each other out.

The appeal was dismissed.

Useful guides on this topic

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

Ingenious film partnerships were trading
In Ingenious Games LLP & Ors v HMRC [2021] EWCA Civ 1180, the Court of Appeal (CoA) 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.

Tax avoidance schemes
How do you spot tax avoidance schemes? What are the types of schemes available that should be avoided? What disclosure requirements are there? When are tax clearances needed?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

External link

Thomas William Good v HMRC [2023] EWCA Civ 114