Several legendary English cricketers, including key members of the 2005 Ashes winning team, are facing “very substantial” bills for payment of tax as a result of their involvement in film investments, the Guardian has learned.
Her Majesty’s Revenue & Customs has sent demands to investors, including the former cricketers, in partnerships set up by the company Ingenious Media, which HMRC is challenging in the upper tax tribunal, claiming they constituted tax avoidance schemes.
The cricketers who invested in these partnerships, which have been subject to HMRC “accelerated payment notices” for the disputed tax breaks, include Michael Vaughan, the captain of England from 2003-08 – including during the 2005 Ashes. Vaughan was an investor in three partnerships HMRC is challenging: Ingenious Film Partners 2, Inside Track Productions and Ingenious Film Partners. With some of his England team-mates at the time, Vaughan signed up for the schemes during the peak of their careers, apparently as part of planning for a financial future when their playing days were over.
Vaughan, Paul Collingwood, Matthew Hoggard and Ashley Giles invested in Ingenious Film Partners in February and March 2005, months before the monumental Ashes victory over Australia. Former England international players who are also in the long list of investors – which is publicly registered at Companies House – include Alec Stewart, Mark Butcher, David Gower and the current managing director of the England and Wales Cricket Board, Paul Downton, who was working in the City at the time he invested.
Ingenious is adamantly defending these partnerships, arguing that they were properly established, approved by HMRC at the time, and invested in hugely successful films including Avatar, Hotel Rwanda and Girl With a Pearl Earring. However, under powers recently granted by the government, and reflecting the newly hostile climate to any suggestion of tax avoidance, HMRC can now demand up-front repayment of tax which is the subject of a dispute, while a case is being heard.
Except for Gower, none of the former cricketers asked by the Guardian about the Ingenious partnerships and tax demands wanted to talk about it publicly. One who did speak about it on the condition of anonymity said he is now facing a demand from HMRC for “a not insignificant amount of money” which will put him “in difficulties” if he has to pay it in full. He said he does not criticise the financial adviser who recommended the investment because the partnerships were developed in consultation with HMRC and he also made his own inquiries. While he understood there was “some form of benefit in terms of tax”, the player said he was motivated more by the investment potentially paying a dividend for years after his cricket career was over.
“As a sportsman you earn the most money you will ever earn in your life by the age of 32,” he said, “so planning is about trying to provide the best you can for the future.”
Ingenious stresses that its film partnerships were different from schemes designed to take advantage of tax breaks introduced by the Labour government in 2007 to boost the film industry. Many wealthy people, including cricketers, footballers and showbusiness figures, invested in the Ingenious partnerships and most supplemented their own investment with money borrowed from a bank. The value of each film was then accounted for as lower than the investors paid in, because films are speculative ventures which can lose money. This produced a loss, and tax relief, which the investors could use against tax owed elsewhere.
HMRC gave notice to Ingenious in 2004 that it was investigating the partnerships and has since challenged the legitimacy of the tax relief granted between 2002 and 2011, resulting in a huge repayment claim amounting to around £1bn. Key to the case, according to an interim judgment last year, is HMRC’s argument that the partnerships of investors were not “carrying on a trade” that entitled them to those tax reliefs.
Mr Justice Sales summarised: “HMRC’s conclusions, after investigation of [the film schemes’] affairs, [were] that the appellant partnerships were not at the relevant times carrying on a trade.”
Ingenious is fighting that view in the tribunal, arguing that the partnerships were clearly trading, as they backed 65 films, including Oscar- and Bafta‑nominated productions.
Jon Alexander, managing director of Arundel Wealth Management, who has been asked by the Professional Cricketers’ Association to help some of the affected players manage their financial positions, said some are facing “very substantial demands”.
Another former player who talked to the Guardian anonymously said he had paid a “material sum of money”, although not one that has put him in financial difficulties. One of two of the former players are said to have accepted the offer from HMRC to settle, which means they will not get their money back if Ingenious is successful in the tribunal case.
Gower said he emphatically believes the tax demands are unjust because these were correct investments at the time, which HMRC had looked at and approved. He was an investor from 2004 in three Ingenious schemes and, while accepting that tax planning was part of his motivation for doing so, argues that this was legitimate because the partnerships were set up in consultation with HMRC and that it is “appalling” the tax is now being demanded back.
“For me the money involved is not life-threatening, it won’t wipe me out,” Gower said. “But the principle is just wrong and I want to stand up against it. The government wanted to encourage investment in the film industry, there was a genuine element of risk. The films were successful and generated more than £1bn in taxable income and now HMRC is coming back 10 years later saying the schemes weren’t valid.
“There was a tax planning element to the scheme, I would be wrong to deny that; you are always looking for ways to make the most of your resources. But efficient tax planning is 100% legal. Now the political outlook has changed, tax avoidance has become unpopular and HMRC is changing the rules retrospectively, which is appalling.”
Gower said he did not blame his financial adviser, whom he still retains, because he made all necessary checks at the time, and he hopes Ingenious will win at the tribunal.
The company believes it has been tarnished by association with other tax‑deferring film schemes that have also landed investors with demands from HMRC that many are struggling to pay. It also objects to the legislation allowing HMRC to send accelerated payment notices, demanding the disputed tax be paid now, even though the tribunal case had already started.
In a statement, Ingenious have said that it is confident of success in the tribunal; if it does win, HMRC would reimburse investors the tax paid following the recent accelerated payment demands. An Ingenious spokesman said: “All our partnerships were either sale and leaseback partnerships established under government legislation and subject to positive guidance by HMRC; or were bona fide commercial partnerships operated for profit.”
Additional reporting by Daniel Beizsley
guardian.co.uk © Guardian News and Media Limited 2010