Supreme Court Settles Eclipse 35 Dispute

Thu 14 Apr 2016

The sun has set on litigation that started in 2012 between HMRC and Eclipse Film Partners No 35 LLP (“Eclipse 35”). The Supreme Court comprising of five Lords has refused Eclipse 35 permission to appeal.

The permission to appeal was refused in under an hour demonstrating the definitive position of the law as summarised by the Court of Appeal. To recap, the Court of Appeal determined, as did the previous tax tribunals, that the scheme did not qualify for tax relief purposes as no trade was being carried out, but instead it had carried on a non-trading activity of film exploitation. 

The clarity of the law could ease the litigation process in HMRC’s favour when pursuing other film partnerships or tax relief schemes. Moreover, the Supreme Court has set a precedence that where the question of trading is raised in relation to other film schemes, permission to appeal to a higher court may be refused.

The financial impact of the judgment for Eclipse 35 partners is that they now face large tax liabilities. But the judgment is also potentially far reaching for not only the other Eclipse partnerships but also many other film schemes. We would now expect HMRC to issue Follower Notices to the other Eclipse Partnerships and demand the tax HMRC considers is due. This will affect hundreds of Eclipse members and could have serious financial implications for all those involved. This may also alert partners in other film schemes to contemplate the risk of litigation and the potential benefit of settlement instead.

There is the possibility that other Eclipse partnerships may take up the fight with HMRC, but this case may cast an eternal eclipse over the eligibility for relief for film schemes.

If you would like to find out more or discuss your position, please contact our Tax Investigations team on 020 7063 4639 or 0161 831 1312.