Lack of evidence

The taxpayer partnership was set up in 2001 to produce the film Devil’s Gate. The partnership claimed relief under F(No 2)A 1997, s 48 in its tax return for 2001/02  for losses of £1.9m – about £1.2m of which was for deferred amounts payable to the cast and production crew.

HMRC reduced the loss to £597,300 after a lengthy enquiry, saying it was the figure contributed by the taxpayer, which appealed.

The First-tier Tribunal concluded that the partnership’s financial statement had not complied with generally accepted accounting practice and should have been corrected “to remove the provision for deferred payments to the cast and crew before being used as a starting point for the calculation of the taxable profit or loss”.

The deferred amounts were unknown when the statement was signed; it might be that the partnership would never pay the cast and crew. There was no evidence to show that the production team was aware of the partnership, quite apart from it having made financial arrangements with it.

The taxpayer’s appeal was dismissed.

Issue: 4403 / Categories: Tax cases , Business