On today’s tax naughty step

He’s not especially active on twitter, Geoffrey Cox QC, but with pleasing irony his latest tweet champions the new Theatre Tax Credit.

Clicking on the link reveals that:

The new scheme provides support for theatres across the country, bringing productions to new audiences as well as promoting economic growth and widening opportunities for people to participate in the arts.

And what’s not to like about that?

I ask because Gordon Brown, in his 1997 Budget speech, championed a very similar sort of scheme – only for films rather than theatre. He said this:

Britain is increasingly leading the world in those industries which most obviously
depend on the skills and talents of their workers – communications, design,
architecture, fashion, music and film. Our national endowment fund for science
technology and the arts will offer talented young artists and scientists, the finance to
turn British ideas into successful business ventures. But despite the British film
industry’s outstanding record of creative and critical success, too many British films
that could be made in Britain are being made abroad, or not at all. The talents of British film makers can and should, wherever possible, be employed to the benefit of the British economy.

That announcement was the spur for the creation of Ingenious Media (founded in 1998); which put together Phoenix Film Partners LLP; in which one Geoffrey Cox QC, MP invested. According to today’s Mirror.

But let me return to my question.

Measures – including tax measures – that help us reap the cultural and economic benefits of a vibrant arts sector, these sound like good things. But what of those who are encouraged by the availability of tax reliefs to provide the capital for the arts sector to flourish? Those who would not invest without the tax incentive the relief provides: good or bad?

The answer is, of course, that it all depends. The story of how the 1997 film tax reliefs spawned a huge range of arrangements – some absolutely what Gordon Brown had intended, some quite clearly not, and a large number in between – I have told elsewhere on this blog. But what cannot sensibly be argued – I almost said ‘cannot be argued’ but it is being argued and every day – is that the mere fact that someone has been induced by a tax relief to provide funding for the arts renders them amenable of criticism.

So, what of Geoffrey Cox QC MP?

What we learned from today’s Mirror piece is this: that he has invested in Phoenix; that Phoenix is being enquired into by HMRC; and that Accelerated Payment Notices may be issued to Phoenix members.

Investment in the arts was what the reliefs sought to achieve and every single arrangement accessing the reliefs will have been the subject of HMRC enquiry. Accelerated Payment Notices, I have talked about here. Colloquially they signal that arrangements might be abusive but they certainly don’t decide that they are.

Now. I don’t know what arrangements Phoenix entered into. I don’t know where on the spectrum between entirely pro-purposive and clearly abusive they fall. And nor, it would seem, does the Mirror. Tax avoidance is clearly a social ill and I have written widely in support of measures to tackle it. But by going too big too early we’re in clear danger of rushing to ill-judgement.

Follow me on Twitter @JolyonMaugham

5 thoughts on “On today’s tax naughty step

  1. Hello Jolyon, I enjoy your blog.

    It seems to me (as a layman on tax) that whenever there is some kind of relief, deduction (or something of this kind) offered by the tax legislation, it just invites some bright mind (who is well paid, and therefore it will attract bright minds) to find some loopholes. And they won’t run out of customers wishing to push it to the wire.

    The only thing that surprises me about Mr Cox’s behaviour is that anyone is surprised that someone would do it. (I have never heard of him so I am not casting aspersions about him personally).

    It’s a bit like a car owner leaving his car unlocked with the keys in the ignition. Most will walk past the car without stealing it. But we can’t be surprised when a passer-by cannot resist temptation – only a matter of time.

    The direct fault and moral culpability for the theft of course lies with the thief.

    But we can’t help thinking there is some level on which the loss of the car is partly down to the foolishness of the car owner.

    So should we do away with these reliefs, as far as we can? Keep the tax base as broad as possible, to kill off at least some tax avoidance. Otherwise, we’re asking for this kind of trouble.

  2. I think it’s worth noting that the original film tax relief, which spawned all the schemes, was available to investors via partnership structures.

    The Treasury has learned its lesson and film tax relief is now available to corporate entities only – the old style film schemes simply do not work via an opaque vehicle. The only relief around is via SEIS or EIS.

    I understand that for every £1 of film tax credit relief given, mainly to US film and TV studios, the Treasury expects £5+ of additional revenue via payroll taxes, VAT, etc. This is why, for example, the latest Star Wars film is being made here, why all UK film studios are fully booked for years ahead, why Game of Thrones is made here, etc etc.

    The theatre tax credit is the same – it is a corporate tax relief. I do not expect it to spawn schemes in the same way as Labour’s disastrous film tax relief.

  3. Thanks for your comments. Very pleased to have readers of all political hues. But I’m not sure one wants to be too party political.

    (1) The notion of accessing statutory film tax relief through partnerships was introduced in the Finance (No 2) Act 1992 – which was (of course) a piece of legislation introduced by a Conservative government. (2) The old style partnership film relief generated similar economic (and fiscal spinoffs) to the new style relief. (3) The new corporate tax credit for the creative industries including films (and on which that for theatres is based) was introduced in 1997 (by a Labour Government). (4) Also worth noting that I understand the corporate tax relief is being accessed in some ‘surprising’ ways.

  4. Ha! Thanks!

    I’d be interested to hear about the surprising ways that new-style relief is being abused. Nothing like that has hit my desk yet, and we do get quite a lot of schemes sent to us.

    When I spoke to my colleagues who specialise in films – you will have gathered that it’s not my speciality – the only thing that I heard was that some investors occasionally view the FTC payment as their “recoupment” in the “waterfall”. Film company waterfall arrangements are something of a black art in and of themselves – not for tax reasons, simply that the understood entitlements of the parties may not always bear a close resemblance to the apparent equity or debt rights.

    As for being political – certainly not my intention. I just think it’s a bit harsh to criticise an MP for supporting TTC when it’s pretty unlikely there’s any vested interest here. Yes he probably shouldn’t have used the film scheme, but that shouldn’t prevent him from supporting TTC.

  5. Apologies if I barked when I should have growled 🙂

    Wasn’t at all my intention to criticise GCQCMP. Quite the contrary. I was mildly criticising the Mirror (although loads of others who should know better do it too) for going too big too early. I think GCQCMP is entitled to say – as I did in my piece – that neither the Mirror, nor I, know where on the spectrum he sits.

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