Today, over six pages, the Sunday Times has shown that a number of professional footballers face financial ruin because they participated in so-called film schemes.
If you were earning a lot of money during the late 90s and early 00s and had an IFA I can almost guarantee you would have been offered the opportunity to participate in a film scheme. They were sold – almost without exception – as opportunities for the wealthy to mitigate (less politely, cut) their tax bill.
It now looks as though film schemes will not deliver that result – although greater clarity will be brought to this question by a forthcoming Supreme Court appeal called Eclipse 35. (Transparency note: I am lead Counsel for Eclipse 35.)
I have a long standing, dual, interest in film schemes. First, I have been involved in litigating almost all – if not all – of them. Second, through a series of posts on this blog, I have written about the many interesting questions that they raise.
Writing here and here I sought to bring a more nuanced perspective to the question whether those who invest in film schemes are getting what they deserve. Writing here I examined the crowd-dynamic that lead so many to embark on tax avoidance schemes. I’ve also written on how you solve these problems here, here, here and elsewhere.
But the most important piece I have written is this one. In it I point the finger at a small group of real villains: some members of my own profession. I invite you to read it.
But the reason I write this morning is this.
I applaud the decision of the Sunday Times to give this story the prominence it deserves. The basic argument is that a number of footballers face financial ruin through no fault of their own. I have no doubt that that argument is right. And the story of working class kids who work hard and succeed as brilliant athlete or musicians but lose it all due to the actions of their advisers is familiar through the ages. But it continues to have a powerful resonance for me – and I suspect for many of you.
I have worked with the Sunday Times on this story, I am quoted in it, and I applaud it. But I do want to add an important postscript.
To focus on two financial advisers – named in the Sunday Times as David McKee and Kevin McMenamin – is to miss the broader story.
Tax barristers got rich through devising these schemes – and are not being held to account. I showed this here.
In that same post, I pointed out the promoters who devised these schemes may have made £100 million from a single idea. And although many of them may have been wound up, the individuals who ran them will have walked away with fortunes. It is very difficult to hold them to account as I pointed out here.
IFAs, too, have wound themselves up – and the individuals involved have walked away wealthy.
And Government too has achieved its policy objectives.
(that’s an extract from this Decision). The very films Government sought to encourage were made – but Government has (in some cases at least) refused to honour its side of the clear and explicit bargain it struck with investors. I have explored this theme in more detail here.
So it’s not just David McKee and Kevin McMenamin – about whom I know nothing beyond that which is reported in the Sunday Times – whose conduct is amenable of criticism. Everyone involved – those who created the environment for these schemes, those who devised them, advised on them, administered them, and sold them – bears a share of the blame.
And they also share responsibility for the plight of the victims at the bottom.
I’ve tried in leaden-footed legalese to express this sentiment.
But don’t waste your time. Listen instead to Dylan on Who Killed Davey Moore.Follow @jolyonmaugham
I’ve read the article and this additional piece and whilst I may deplore some of the journalistic licence applied, the core of the story is correct. I wonder however if the picture would be more complete if the gravy train of fees and the like included those currently offering “solutions” to the problem?
My experience is that some promoters of the schemes put some (not all I’m sure) significant cash into defending their offerings and continue to do so. Not all of them by any means and not always the full amount required for advocacy fees etc, but significant amounts.
Some of the suggestions arising from those who devised/sold schemes back in the day and who now seek to provide a fee based solution look to me to be “debatable”. However until they are tested they will continue to attract investors who see financial ruin or payment of a fee to postpone, perhaps dodge, such ruin as their only hope.
HMRC has the power to end this saga. Talk to the investors, devise a sensible and gracious settlement, launch and complete it and once closed, change the law (retrospectively and at the risk of exposing the Government’s reneging on the original deal) to put beyond question any “solution”.
I agree. I hesitate to say #NotAllPromoters but you’re absolutely right to highlight that there are important qualitative differences in the behaviour of different members of all of the parties I have discussed.
A lot of the points made in this interesting post (impunity of scheme promoters, of scheme engineers, of HMRC who created a fertile ground for this industry to flourish,then looked the other way for a decade, in guilty inaction…) can equally apply to the so-called “contractor schemes”，which are on course to bring ruin not to tens, but thousands if not tens of thousands.
When can we expect to read a factual piece in the national press about this?
Ah, yes: there are no “celebs” or “high-net worth” individuals involved.
So, probably never.
Ģraham Webber and I can agree on one thing certainly: HMRC does appear to have the power in its hands at the moment. Because the schemes have, barring a surprise, lost. Had the investors he mentions, in reality the promoters, attempted to devise “a sensible and gracious settlement” at the outset then they all wouldn’t be here. However, they didn’t did they. They set out to win, to win big. Settlement wasn’t in their vocabulary when they thought they were winning.
I do feel genuine sympathy for these (nearly all) men who were so very badly advised in their twenties. My personal experience of talking to young international sportsmen is of insecurity, of knowing they are surrounded by people who’s interest in them is to get a slice.of the cake. There are many confdantes available to them but few true friends.
However, to the promoters, those who viewed those footballers and boy band members as carion: it must be a struggle for you; ha ha.
Ironman, with deference to our host here, I think that most film schemes have “lost” – so far. There may yet be a surprise victory at the final hurdle for some.
Bear in mind that the promoter of schemes is a wholesaler and operator. The interaction with the investor would have been via an IFA. So did the promoter set out to defend their scheme for the benefit of the investor or the IFA. Probably both.
IFA’s have come under huge pressure as a result of such schemes and despite having earned considerable sums, many have chosen liquidation. Some promoters have also failed. However those spending their own money and more lately perhaps their investor’s money remain committed as far as I can see.
Committed to what? It’s clear that the Government reneged on its share of the bargain. It’s clear that most promoters would be “safe” from any compensatory action from investors, (IFA’s perhaps less so?). The driver for the litigation therefore appears to be principal based and not financial. A “win” for a promoter gains them no additional income. I can’t imagine that an investor having been through 10 years of litigation will feel grateful enough to make a payment to a promoter!
True a promoter may be making a margin on fees and for the management of an enquiry, but again, the majority of that will go to professional advisers.
So, with respect, I think your view of promoter motivation in this situation should perhaps be mitigated by the above?
Professional pride demands I tell you that I have won a couple…
The “bargain” in question would have included genuine investment to finance films. However, tapping up a studio and handing it a small kick-back in return for having the partnership name added to a film that already had finance in place or in some cases had already been made is not investment.
So perhaps on this blog we can drop this pretence. These schemes were money-go-rounds. The risk was non existent, the investment artificial.
Given that, the idea of the promoters of artificial tax avoidance arrangements litigating on a point of principle is about as realistic as a pig flying outside my office window in the next 5 minutes. Clients are indeed in some cases seeking to take legal action against IFAs and scheme promoters. Liquidation is here a very convenient way of walking away from obligations.
No, sorry, people got burned. Well that is what ‘risk’ should be about. All-in-all it is an outcome that will not trouble me at all.
So why are the promoters still defending?