- March 26, 2013
- Posted by: Josiah Hincks Solicitors
- Category: Business Law Updates
More than £20 million lost by a businessman in respect of film distribution activity could not be set off against his income for tax purposes because the various loss-making transactions were neither in the nature of trade nor were they on a fully commercial basis, the First-Tier Tribunal has ruled.
The hedge fund manager had claimed loss relief in the sum of £20,151,186 to reflect the difference between what he had paid for various film rights and their true value. He argued that he and other participants in the scheme had sought to make a profit from acquiring and exploiting film distribution rights. However Her Majesty’s Revenue & Customs (HMRC) refused relief on the basis that the scheme had been designed to generate tax losses which did not represent true economic loss.
Ruling in favour of HMRC, the tribunal found that relief under the schedule D of the Income and Corporation Taxes Act 1988 had rightly been refused because the composite transactions involved in the scheme did not bear the ‘badges of trade’. The transactions had also not been carried out with a view to profit, or the reasonable expectation of profit, and the losses had not been calculated in accordance with generally accepted accounting principles.