Film partnership Schemes are a form of tax planning and have been available and used since 1997 as a way of avoiding income tax and in some cases Capital Gains Tax. They are particularly effective for income tax planning. These UK tax avoidance schemes are often described as Film Schemes or film tax avoidance schemes. The form they take is continually changing to remain legal with new legislation. They have ranged from simply investing in a particular film that is about to be released to even making and producing a film.Background To promote the use of UK Filming facilities like Pinewood Studios and bring large expenditure to the UK or retain expenditure in the UK, the HMRC introduces from time to time very favourable tax breaks to individuals and companies that place cash with the production of films. The Tax Avoidance Industry then started using these tax breaks for film partnership schemes to great effect in avoiding income tax and sometimes capital gains tax. This has caused legislation being introduced by the HMRC over the years that prevented the use of film partnership schemes as a way of avoiding tax.Film Investor Tax Breaks Massively aid the UK Film Industry Each time these changes in legislation have had an adverse effect on the film industry. For example, in 2004 the number of films being created in the UK reduced half and the revenue spent in the UK on films dropped from GBP 269 million to GBP 117 million. This caused the re-introduction of these very favourable tax breaks. This situation has fluctuated over the years and has meant that film partnership schemes are not always possible in a given tax year. There is always great pressure on the Government and HMRC from the Film Production Companies to keep the tax breaks for investors in the production of UK films in the UK.However, clever accountants have numerous ways in which various tax experts have devised tax avoidance schemes over the years and these methods are not restricted to film partnership schemes. There are many ways of creating paper losses, like investing in patents for new pieces of software, which could potentially make huge gains, but often trigger large losses, which are what is wanted for a tax avoidance scheme. However the investment must always be commercially viable and have a credible upside. Some film schemes historically did not even involve a real film so were naturally deemed as unworkable by the HMRC for tax avoidance purposes.How do film partnership schemes work? The way film partnership schemes or any tax avoidance scheme works is to create a loss. The loss is usually created through a geared investment that will ultimately be associated with a high risk business opportunity where the outcome isn't certain. The equity for the loan is usually around 20 % to 25 % and the loan is what creates the larger exaggerated loss. The clever bit is designing the loan to be commercial but in such a way that it will never be paid back. Film Schemes can be used by Self Employed people as well as those who pay tax as they earn it through an employer (PAYE). Self employed people will submit their tax return with a zero balance of income on it and therefore pay no tax. Those who are employed will also submit a tax return where they usually will not be required to and claim their tax back from HMRC because a loss will be shown against the income from their job. The earliest that employed people will receive their refund will be approximately 3 weeks from submission of their tax return although a delay of several months is not uncommon.Film partnership schemes often enable the participant to create a loss sufficiently large enough to avoid tax in the current tax year and to claim back tax for the previous three tax years, which is a huge bonus to ones wealth or lifestyle! This particular aspect of tax avoidance will always be determined by each tax break being offered in a particular tax year.
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