Treatment of losses from film scheme

The taxpayer invested in film distribution rights using a combination of his own funds and loans. In essence investors among whom was the taxpayer were entitled to a share in the profits of the films but this was subject to a minimum annual payment which was intended to enable them to meet their loan interest obligations. The aim of the arrangement was to generate a tax loss eligible for sideways relief and for the interest to be tax deductible.

HMRC denied the taxpayer’s claim for sideways relief and issued discovery assessments to collect income tax on the minimum annual payments and disallowing the deductions for loan interest payments.

The First-tier Tribunal dismissed the taxpayer’s appeal.

The first issue before the Upper Tribunal was whether the discovery assessments were stale. The taxpayer said they were because of the delay between the discoveries and the issue of the assessments. Referring...