Even though investigations by HMRC in the UK are supposed to be private and confidential the names of former Manchester United boss Sir Alex Ferguson and ex-England manager Sven Goran Eriksson are apparently amongst a list of 800 celebrities and professionals being pursued by tax officials. In what could become one of the largest tax investigations in living history, there are real concerns that some of those who invested in “film schemes” could end up paying up to 20 times their initial investment. So, on what basis is the UK government hounding 800 celebrities for repayment of tax?
Film investments
Film investment schemes have been popular over the last 20 years or so and effectively allowed individuals to invest in “film investments” which allow them to reduce their tax bills. In a complicated structure the schemes revolve around a process of buying and renting back Hollywood blockbusters to film studios allowing investors to shield potentially billions of pounds from the UK government. Many so-called tax avoidance schemes have been pushing the envelope back as far as possible and, from what the UK authorities are suggesting, the area of film investment could be about to unravel.
Unofficial information suggests that for example an investor who placed £200,000 into a scheme may be expected to pay back between £2 million and £4 million to the UK government. Quite why the authorities have apparently decided that anywhere between 10 times and 20 times the initial investment is “fair” is unclear. However, at this moment in time the authorities certainly have the upper hand and many historic investors are worried.
Possible bankruptcies and worse
Tax advisers have already been contacted by HMRC to confirm that they will be pursuing repayment of initial investment and more. One expert suggested that anywhere between 600 and 700 of those on the list of 800 could well be pushed into bankruptcy. Indeed there are even concerns that the financial demise of some celebrities and professionals could push them towards suicide!
In a sign that the government is playing hardball over alleged tax avoidance schemes, investors will have just 90 days to repay funds in full after which point they will feel the full strength of the law. This is not the first time that the UK authorities have attempted to unravel complicated tax avoidance schemes which initially seemed to be perfectly law-abiding and above board. Granted, some were a little close to the line, but legal advice was taken at the time which seemed to support the structure.
Tax avoidance schemes
Whether it is overseas bank accounts or tax avoidance schemes investing in “film investments” the UK authorities and their worldwide counterparts have certainly begun a major crackdown. The fact that the UK government is set to demand between 10 times and 20 times the initial investment in “film investment” tax avoidance schemes is severe to say the least. Many celebrities will face potential bankruptcy although it will send out a signal for the future.
One of the main problems with tax reduction schemes is the fact that HMRC has refused to give any guidance for those looking to set up valid and legal schemes. It is only when schemes are operational and funds have been invested that they will take any notice, pursuing any potential conflicts with tax law. So, who will be hit hardest? Will tax advisers be sued by their clients?