Treasury Select Committee chairman Andrew Tyrie has written to Chancellor Philip Hammond, highlighting the "very severe financial stress" caused to investors by the clampdown on the exploitation of tax breaks for investors in the film industry.
In a letter seen by Professional Adviser, Tyrie (pictured) wrote: "Of late, an increasing number of representations have been made to me expressing concern the outcomes are not always fair nor what anyone could have expected.
"This has resulted in financial calamity for some of those involved and considerable difficulties for HMRC in bringing a large number of schemes to a close."
In May 2016, the Supreme Court made a decision on film tax scheme Eclipse 35 leaving investors facing accelerated payment notices (APNs) from HM Revenue & Customs (HMRC) amounting to more than £2bn.
The Ingenious Film case, which saw a first-tier tribunal rule in favour of investors in August last year, is yet to be concluded, according to BDO Tax Dispute Resolution partner Dawn Register, who said investors would still suffer "real financial loss" from the tribunal's decision and could be taking further legal action to achieve full tax reimbursement.
In his letter to Hammond, Tyrie cited a number of Financial Times articles that highlighted investors were facing "life-changing bills" far exceeding their original investment and had led to "suicides within investor circles".
In response, a HMRC spokesperson said: "We have worked hard to tackle abuse in the system on behalf of the vast majority of investors who play by the rules, ensuring they are enforced fairly and with sensitivity."
Tyrie said he had heard various individuals' complaints that "may or may not be justified" about HMRC's approach. As an example, he added: "I have been told a number of firms and individuals have made suggestions to HMRC for what they consider to be an equitable and pragmatic way of bringing the matter to a conclusion after several years, and that these suggestions have been rejected."
Tyrie also highlighted concerns over taxation on ‘dry income', where individuals who have been denied any relief from their repayment continue to be taxed on income from the existing investment, from which they are unable to profit.
Tyrie called for a clear explanation from HMRC of the underlying principles for taxing ‘dry income' and a review of the impact this taxation has on investors, adding: "I would be grateful if you would set out clearly how these matters are being addressed within HMRC and what is being done to ensure any egregious schemes are not causing other less offensive tax-planning arrangements to be caught up in very long-running enquiries."
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