17 Feb 2015 04:18pm

HMRC protects £635m in tax

The Court of Appeal has ruled in favour of HMRC against Eclipse Film Partners (Eclipse 35), protecting approximately £635m in tax

While Eclipse 35 had claimed to trade in film rights, the Court of Appeal ruled that it was in fact a tax avoidance scheme.

Eclipse 35 is one of 31 Eclipse partnerships, and is the first scheme to be taken to litigation.

Under the scheme, investors borrowed large sums of money at interest to invest in Eclipse.

Rights to certain Disney films were then acquired and sub-leased to a different Disney entity to guarantee an income stream. The borrowed money earned interest and covered interest generated on the borrowed money. This was then presented as a trading transaction, allowing partners to claim tax relief.

But, because the court of appeal has now upheld the earlier tribunal decision that Eclipse was not trading, interest relief and profits from the partnership remain taxable.

Financial secretary to the Treasury David Gauke welcomed the news and said that the government would continue “to pursue the minority” who did not pay their fair share of tax.

“The government is committed to tackling tax avoidance schemes like Eclipse,” he said.

“These schemes, which were all too common in the mid-2000s, are an affront to the vast majority of businesses and people who pay what they owe.

“The government has invested £1bn into HMRC to track down and challenge tax dodgers and they will continue to pursue the minority who do not play by the rules.”

Oliver Griffin


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