HMRC offers settlement opportunity to Eclipse Film Partnership members

Following the 2015 Court of Appeal decision that the Eclipse Film Partners No.35 LLP was not trading, Eclipse members are not entitled to any interest relief on borrowings used to finance capital contributions to the LLP, but risked exposure to taxation on the partnership’s income. As a result of discussion between the members and HMRC on whether this ‘dry tax charge’ was a fair result, HMRC is offering a Settlement Opportunity to current and former members of Eclipse LLPs. The Settlement Opportunity requires that individuals:-  

1. Give up the interest relief claims and pay the resulting tax
2. Pay interest on tax paid late
3. Give up any legal actions that are part of any Eclipse related action involving HMRC.

Note that the ‘Opportunity’ does not apply to any individual under criminal investigation by HMRC.

The Eclipse Film Partnerships were film financing arrangements promoted in the mid-2000s. They were marketed as creating a tax deferral by investing in the future returns on film rights. The investments were financed by a combination of investors’ capital and large loans. The marketing material indicated that ‘Eclipse’ generated tax relief by offsetting the interest costs for the partner’s against other income of the members, with partnership income being used to repay the loans taken out.  This was challenged and defeated by HMRC with the result that relief on loan interest payments was disallowed, creating large tax bills for the members.

Whilst the expenditure is still not allowed, the settlement opportunity includes the undertaking that HMRC will not pursue individuals for tax on partnership income treated as paying back borrowings, including for periods after individuals had exited the LLPs. In short, both the promised profits and losses said to have arisen to the LLPs were, according to the LLPs’ advisors ‘illusory’. As such settlement is based on the agreement that members cannot claim tax relief but likewise, HMRC cannot tax the income used to repay borrowing.

HMRC are to contact Eclipse members with the settlement opportunity to resolve any Eclipse related tax issues and the Opportunity will be available for 6 months from the date HMRC notify the individuals concerned.

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If you need assistance understanding the settlement opportunity, following HMRC figures or need assistance in applying to HMRC for time to pay, Mazars are happy to help.

If you wish to know more about HMRC’s Settlement Opportunity, please contact Mazars specialist Tax Investigations Team: 

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