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Interesting tribunal decision on film partnerships

Two film partnerships recently came unstuck at a joint hearing, where the first tier tribunal decided that they were not undertaken on a commercial basis, so the partners were not entitled to sideways loss relief.  

The case in question revolved around appeals by Samarkand Film Partnership No 3 and Proteus Film Partnership No 1 against HMRC’s treatment of their claimed losses. Both partnerships used the services of Future Film Capital Partners Ltd and bought or leased negatives of films including ‘The Queen’ and ‘Oliver Twist’.

In an enlightening, but complex write-up in its tax update this week, Smith & Williamson explained that while the accounting results of the film projects showed an accounting profit, the tribunal considered the net present value of the arrangements to be insufficient to demonstrate a commercial activity was undertaken.

We’re working on a more detailed explanation, but thought that AccountingWEB members might be able to help with our analysis. First - does anyone still get involved with film partnership schemes?

My impression was that the sheen has been wearing off this area and that where the provisions haven’t been tightened up, HMRC has been energetically launching investigations into film partnership loss claims. I’m still looking for the relevant legislation and guidance, if anyone is able to help.

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Legislation and guidance

The legislation and guidance applicable to this case (2005/06 and 2006/07) would have been in Ss.130-144 ITTOIA 2005 and BIM56000 et seq.

However, the rules changed significantly with effect from 1 January 2007 when this legislation was repealed and replaced in the 2006 Finance Act.  The FA 2006 provisions have since been repealed by CTA 2009, which provides replacement legislation for corporation tax purposes, but I can't see that there's replacement legislation for income tax purposes.

The HMRC guidance still reflects the pre-FA2006 legislation.

I haven't been involved with film projects since before FA 2006, but from a quick scan, it looks as though the FA 2006 provisions would have put pay to film purchase/leasing schemes.  New legislation on sideways loss relief has also been introduced.

It seems to me that the only interesting aspect of the case is the not carrying on an activity commercially despite making an accounting profit point.  Otherwise, it's interest seems only to have posterity value.  Just my opinion though.

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Greatly apprecated, George - thanks

The chapter & verse citations are particularly helpful, and the confirmation of my dim memory around the FA06 and CTA09 changes.

I was quite excited by the case (how else are we ever going to get a picture of Helen Mirren onto AccountingWEB?), but loved your comment that its interest "seems only to have posterity value" now. Many thanks again.

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