View more on these topics

Eclipse casts a shadow

Tax avoidance may be morally repugnant in the eyes of George Osborne but it is legal.

Yet last month’s landmark victory for HMRC in the Eclipse 35 film finance case has left tax professionals’ confidence in recommending aggressive schemes shattered.

The introduction of an over-arching cap on taxable reliefs set to come in next April, when the maximum claimable will be restricted to £50,000 or 25 per cent of taxable earnings, would normally have created a buy-now-while-stocks-last opportunity. But the Eclipse 35 decision, other Revenue moves to tighten tax loopholes and increasingly vociferous attacks by politicians means recommending anything left field is riddled with risk.

The accountancy profession is, when it comes to aggressive tax planning, currently in a state of soul-searching.

On the one hand, it is hoping the Eclipse 35 case is a one-off decision of a maverick judge, on the other, it fears this crusade against tax avoidance may ultimately lead to the outlawing of strategies considered main-stream a couple of years ago, with clients coming a cropper along the way.

The Eclipse 35 case is clearly at one end of the spectrum of what constitutes aggressive tax planning. The scheme’s strategy of compressing 20 years’ interest payments into a transaction that held rights to a couple of Disney films for a single day led the court to conclude the scheme was not genuinely engaged in a trade. Even though the scheme borrowed £790m to fund the scheme, the court found that the risk of Barclays defaulting on its letter of credit that returned the fixed distributions was too slight to make the profits returned speculative.

The fear for many advisers is where this will all ultimately lead. Just how far will the Revenue succeed in pushing back the frontier of what is acceptable? The Eclipse 35 case seems to say schemes have got to have risk if they are to attract tax relief. But how much risk is enough for tax relief, whether for loss relief or for recognised tax-relieved investments? The Government has already said EIS and VCT schemes that rely on feed-in tariff income are not acceptable because they are not risky enough.

Look up the description of an EIS on HMRC’s website, for example, and it is defined as a scheme designed to help smaller, higher-risk trading companies raise finance.

Yet many of the capital preservation schemes that have been marketed in recent years could arguably fail to meet the Revenue’s description of “higher-risk trading companies”. The reality is in the current climate of hostility towards tax evasion, it has become incredibly difficult to predict with any certainty precisely where the line will be drawn.

The Eclipse 35 case will also embolden HMRC in relation to all the other film schemes already under investigation.

Given the genuine hardship faced by many members of the public on account of the scarcity of public money, it is no surprise that sympathy for the very wealthy is at an all-time low.

It is manifested in public outrage over the tax affairs of public figures, from Ken Livingstone to Lord Ashcroft via senior NHS staff.
As a nation, we could get over the way secrecy breeds suspicion by following Sweden, Norway and Finland and publishing everyone’s tax returns but that would not solve the adviser’s problem in second-guessing what the Revenue will or will not be able to enforce as unacceptable.

John Greenwood is editor of Corporate Adviser



Facebook shares fall 12% in early trades

Shares in social media giant Facebook have fallen by 12 per cent in early trades meaning the stock has now dropped below its opening share price of $38. The stock price has fallen to $33.64 in early trading in New York. Facebook raised $16bn in its initial public offering on Friday, the shares rose over […]

Fund firms issue gold warning

Skandia, Fidelity Worldwide Investment and Eden Financial have warned investors they do not feel gold is a safe-haven asset. Gold is skirting a bear market with gold futures trading at close to $1,593 an ounce on May 21, a 15 per cent drop from a high of $1,881 on August 29. Skandia head of multi-manager […]

Barclays to sell entire BlackRock stake

Barclays is to sell its entire holding in BlackRock through a registered offering and a related buyback by the asset manager. BlackRock has agreed to repurchase up to £632m in stock, conditional on completion of the offering. The stake, which represents a 19.6 per cent interest in Barclays, was acquired as part of the deal […]

Equity release needs different approach

When the RDR was first created in 2006, its implementation seemed a lifetime away but the deadline of the end of December 2012 is racing ever closer. All stakeholders have had sufficient time to digest the implications of the RDR and what it means in terms of the way they go about the advisory process, […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm