UK and International Tax news

Upper Tribunal Decision In Ingenious LLPs Case

Friday 23rd August 2019

The Upper Tribunal has recently published its decision in a case involving three LLPs which had been set up to carry on activities relating to the production of films and games with structures designed to allow investors to access income tax relief on their investment by claiming trading losses against income.

HMRC challenged the validity of the partnership structures on numerous grounds, in particular on the basis that the LLPs did not carry on a trade with a view to profit so that loss relief was disallowed, that the expenditure incurred was capital rather than revenue in nature and that the partnerships’ accounts did not comply with generally accepted accounting practice.

In Ingenious Games LLP, Inside Track Productions LLP, Ingenious Film Partners 2 LLP v HMRC [UKUT 0226 TCC] the UT heard appeals from Ingenious and a cross appeal from HMRC in respect of the FTT’s decision which had concluded that whilst ITP and IFP 2 had been trading with a view to profit, the expenditure incurred was in fact capital in nature rather than revenue and therefore disallowable.  With regard to IG, the FTT had ruled that the partnership did not carry on a trade with a view to profit and therefore the trading losses were disallowable.

The LLPs advanced eight appeals relating to contractual analysis, findings of fact, trading, view to profit, expenditure incurred, wholly and exclusively, GAAP and income/capital.

The appeals of the LLPs were lead appeals for five follower LLPs. Collectively, the loss claims in dispute amount to over £1.6bn although the LLPs said that all of that the tax at stake could be recovered by HMRC as and when the LLPs made taxable profits.

In its 159 page 634 para decision the UT has found in favour of HMRC on all counts, and specifically that none of the LLPs were carrying on a trade, or were carrying on a trade with a view to profit, expenditure incurred by the LLPs was capital rather than income in nature, a proportion of the expenditure incurred was not wholly and exclusively for the purposes of the trade, and the LLP accounts did not comply with GAAP.


If you would like to discuss this decision in more detail, please contact Keith Rushen on 0207 486 2378.

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