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HMRC benefits from Eclipse 35 failure

Investors in a film partnership known as Eclipse 35 are being forced to pay tax bills far greater than their investment thanks to the Court of Appeal shutting down the project.

HM Revenue and Customs has said that in light of the scheme ending, approximately £635 million in public funds is now protected.

The project came into fruition in 2006/07, with ex Manchester manager Sir Alex Ferguson and former Leicester City and England boss Sven-Göran Eriksson among the 287 partners.

The scheme loaned £790 million from Barclays. Over £500 million of its funds were paid as investments to Disney for the movies Underdog and Enchanted. Then £239 million was returned to Barclays for 10 years of interest on the original loan. The moves rights were licensed back to the original owner.

If the deal had worked, the investors would have likely received £400,000 of tax reliefs each on their investment. However, it has now been estimated that they will have to repay around five times their investment. The Court of Appeal’s Lord Justice Vos, however, ruled that the project was not commercially trading with the intention to profit.

Along with further recent events, the failure of the partnership demonstrates the fragile line a business walks between success and failure, with the potential for both being so great. Businesses in the UK should learn from errors made regarding financial transactions if they wish to avoid HMRC demanding payments that otherwise should not have been necessary. Working with an accountant in the Wirral and elsewhere will minimise any chance of that happening.

Posted by Mark
February 20, 2015
HMRC

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