Tax on income not received - Court of Appeal ruling on film scheme

The Court of Appeal decision in Good v HMRC [2023] EWCA Civ 114 was released in February 2023. Although each case depends on its own facts and circumstances, the decision could have a significant impact on many users of similar tax planning arrangements.

The case concerned a tax planning scheme promoted by Scion Film Schemes. The scheme involved a film studio selling distribution rights to a film to a Scion film rights company. The Scion film rights company sold or licensed the rights to investors. The taxpayers invested in the scheme using their own funds and limited recourse loans provided by a Scion entity. They were entitled to a share of the profits of the films, subject to minimum annual payments (MAP) which were assigned to the lender to be used to pay the interest on the loans. 

In lower courts, HMRC had already been successful in challenging the loss relief claimed on the scheme. In the Court of Appeal, Mr Good argued that due to the contractual arrangements he had divested himself of all right and title to the MAPs and, therefore, the MAPs were not his income. The Court of Appeal unanimously disagreed.

In essence, the Court of Appeal found that the taxpayer is subject to income tax on income which they had not received. This has been referred to by many in the profession as a “dry-tax charge”. Indeed, in Lady Justice Wipple’s concluding remarks she said:

“The rejection of this appeal will be very bitter for the taxpayer. Not only has he lost his initial investment of £300,000 in the Scheme, but in addition he is liable to income tax on income which he never himself received … Financially, the taxpayer’s investment in the Scheme has been disastrous. But that cannot affect the interpretation and application of the statute.”

Available Options

Users of the Scion Film schemes, and other tax planning arrangements, will need to consider their position, including whether now is the time to consider settlement with HMRC.

Our team of specialists have significant experience advising taxpayers who have undertaken tax planning and are faced with the consequences of adverse litigation decisions.

We are happy to have a no obligation discussion with investors to discuss their options, please contact Jon Claypole, Richard Philson or Jack Sloggett.