Former cabinet minister Andrew Mitchell, who resigned over the Plebgate scandal back in 2012, invested in a film investment scheme that the government has now declared as inappropriate tax avoidance.
The Ingenious Film Partners 2 vehicle backed big films like Avatar, Girl with a Pearl Earring and Shaun of the Dead, and its promoters say it encouraged genuine investment in British film.
As reported by BBC Newsnight last night, HMRC deemed the tax relief provided by the company as “inappropriate”, meaning investors like Mitchell could end up having to pay back hefty sums after Royal Assent is passed in the coming days.
Earlier this week HMRC named Ingenious Film Partners 2 as one of 1,200 candidates for accelerated payment notices under its new powers to force repayment of tax relief up front, rather than waiting for the outcome of a tax tribunal.
Later this month people using these tax schemes disclosed to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) will have to pay the tax HMRC says they owe within 90 days.
Mitchell said in a statement: “When the last Labour government introduced tax incentives to invest in the British film industry, along with many other investors I did so through Ingenious Films. I resigned from Ingenious when I was in government and always pay all tax when due.”
Ingenious Media added that the government had failed to distinguish between commercial businesses and tax avoidance schemes and said it would fight HMRC’s declaration in a tax tribunal in November.
“The film partnerships run by Ingenious Media have already generated over £1bn in taxable income for the UK Treasury, with more to come over the lifetime of the films they funded,” it said in a statement.
The film scheme functioned by generating relief on losses incurred by the partnerships during early years of trading.
Investors were required to put up a minimum of £36,000 and Ingenious would loan the investor a further £64,000 to take the investment to £100,000.
This would then be used to buy shares in film productions which in their first year created roughly a £90,000 loss.
Investors in the scheme could then write off that loss against their tax, and in return for putting in £36,000 would get about the same amount in tax relief and end up owning a £100,000 stake in one or more films.
Ingenious recently issued a warning to 1,300 of its investors that they could be forced to pay back the tax they saved, possibly with interest.
As well as Mitchell, Newsnight identified other senior figures who invested in the scheme, including the former chief secretary to the Treasury Lord Waldegrave and the former chairman of the BBC Lord Grade.
Andrew Mitchell resigned in the wake of the Plebgate incident when he allegedly called Downing Street policemen PC Toby Rowland a “f****** pleb”.
This has since left him with a series of libel actions to fight.