Chris Hoyle v The Commissioners for HMRC
[2024] UKFTT 1060 (TC)
The Gala Film Partners, LLP v The Commissioners for HMRC
4 August 2023
[2023] UKFTT 699 (TC)
First-tier Tribunal
Imagine a group of rich people set up a company to buy movie rights, then immediately sell them back at a guaranteed price. They claimed huge tax losses because of the initial investment, even though they were basically guaranteed to get their money back. The court said this wasn't a real business, just a clever tax trick.
Key Facts
- •Gala Film Partners, LLP (Gala) appealed HMRC's amendments to its 2003/04 tax return, claiming a loss of £110,755,060.68.
- •HMRC claimed Gala had taxable profits of £552,570.52 and disputed loss relief claimed by Gala's members.
- •Gala's structure involved acquiring film distribution rights, then sub-licensing them back to a Sony entity.
- •Gala's members received significant tax repayments in the first year, exceeding their cash contributions.
- •Sony exercised a call option in the third year, triggering a capital gains tax (CGT) charge for the members.
Legal Principles
Definition of 'trade' under the Income Tax Acts.
s 832(1) ICTA; Eclipse Film Partners (No.35) LLP v HMRC [2015] STC 1429; Ingenious Games LLP and ors v HMRC [2021] STC 1791
'With a view to profit' test under s 118ZA ICTA.
Ingenious Games LLP and ors v HMRC [2021] STC 1791
Deductibility of expenditure under s 74 ICTA.
Ingenious Games LLP and ors v HMRC [2017] SFTD 1158; Ingenious Games LLP and ors v HMRC [2019] UKUT 0226 (TCC)
Statutory interpretation following WT Ramsay Ltd v IRC [1982] AC 300.
WT Ramsay Ltd v IRC [1982] AC 300; Barclays Mercantile Business Finance Ltd v Mawson [2005] 1 AC 684; Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46
Contractual interpretation considering the factual matrix.
Wood v Capita Insurance Services Ltd [2017] UKSC 24; Ingenious Games LLP and ors v HMRC [2019] UKUT 0226 (TCC)
Loss relief under ss 380 and 381 ICTA.
s 380(1), s 381(1) to (3), s 384(9) ICTA
Interest relief under ss 353 and 362 ICTA.
s 353 ICTA, s 362 ICTA, s 787(1) ICTA
GAAP compliance under ss 42(1) and 46(2) Finance Act 1998.
ss 42(1) and 46(2) Finance Act 1998; FRS 5
Outcomes
Gala's appeal dismissed.
Gala did not carry on a trade, and even if it did, it did not do so 'with a view to profit'.
Referral questions answered negatively.
Conditions for loss relief under ss 380 and 381 ICTA and interest relief under s 362 ICTA were not met.
Gala's loss was not computed in accordance with GAAP.
The structure lacked commercial substance; the SG loans did not create a genuine economic burden for Gala.