Take That Tax Scheme as a Tribunal decision favours HM Revenue & Customs (HMRC) and lands Gary Barlow and his Take That bandmates Mark Owen and Howard Donald with a huge tax bill reported around £20 million, after, according to reports that they paid into a tax avoidance scheme.
It is reported that the Take That band members along with their manager paid £66 million into a tax avoidance scheme named Icebreaker which was dubbed as a music industry investment scheme.
However, a tribunal ruling on 9 May 2014 decided it was actually a tax avoidance scheme and Judge Colin Bishop told the court that
“Icebreaker is, and was known and understood by all concerned to be, a tax avoidance scheme.”
“The aim was to secure tax relief for members, and to inflate the scale of the relief by unnecessary borrowing”
“No serious or even moderately sophisticated investor, genuinely seeking a profit… would rationally have chosen an Icebreaker partnership.”
“The predominant purpose of entering the scheme was to achieve a tax saving”
How it was intended that Icebreaker would achieve a tax saving
The Take That band members along with their manager invested money in a company called Icebreaker Management Services Limited. The promoters of the company stated that the aim of the company was to produce “creative and artistic material and taxable profits” however a Tribunal judged in favour of HMRC’s belief that the main reason for the company was actually to achieve tax savings for wealthy individuals.
The Icebreaker company invested in partnerships that worked in the music industry and would benefit from tax reliefs that the Government has in place with the intention of supporting those in creative industries.
The partnerships would borrow money in excess and be charged interest to generate losses. The losses incurred by the partnership could then be offset against an investor’s income over the previous three years. The investors could also extend this tax relief by taking out offshore circular loans prepared by Icebreaker. As a result, an investment of £40,000 in the company and a loan of £160,000 from it, would generate around £77,520 in tax relief.
HMRC on the Tribunal’s decision
A spokesman for HMRC stated:
HMRC has put in place generous reliefs to support genuine business investment and our tax reliefs for the creative industries work well, enabling the UK’s world-class film, television and video production companies to compete on the global stage. But we will not tolerate abuse of the system by people trying to dodge their tax obligations. HMRC will continue to challenge in the courts and anyone who engages in tax avoidance schemes risks not only the high cost of these schemes but also lay themselves open to penalties and, potentially, prosecution.
Where do they go now?
Lessons for our clients and small businesses
The lessons which can be learned from the Icebreaker scheme for small businesses is to ensure that if you enter into an arrangement with the main aim of avoiding tax, even if you have a reasonable and logical argument for the arrangement as with the Icebreaker scheme HMRC may challenge the arrangement.
If HMRC challenge the arrangement and are judged right in their view by an independent Tribunal this could lead to any tax that has been avoided having to be repaid to HMRC. HMRC could aim to obtain repayment of avoided tax going back up to 20 years. In addition HMRC would charge interest and penalties of which the penalties could be as much as 100% of the tax originally avoided.
HMRC has more tools to challenge such arrangements such as the recently introduced General Anti-Abuse Rule (GAAR) therefore practices which would have previously been recommended by advisers may no longer achieve the intended tax saving. Therefore our advice would be to review any tax saving arrangements you are currently involved in to judge if they remain suitable.
