Accountant Keith Hayley, 64, and London-based advisers Robert Bevan, 53, and Anthony Charles Savill, 53, set up Little Wing Films to develop film projects.
In reality, the firm was the front for a scam that persuaded investors that for every £100,000 they put in, higher rate taxpayers would get £130,000 in tax repayments from HMRC.
The three men, who were found guilty at Birmingham Crown Court on 12 May, falsely claimed to have invested £275m into film projects to increase the scheme’s financial losses, which enabled investors to collectively claim around £100m in tax repayments.
Recovering investor repayments
Court documents from last year reveal that the film producers promoted the scheme to financial advisers who then in turn marketed it to their clients.
Over 275 investors such a footballers, investment banks and a pop star, deposited more than £76m into the scheme in the belief that they were helping the British film industry, while legitimately reducing their tax bill.
The UK tax department has confirmed that it will recover these repayments from the investors.
Described at an earlier hearing as the “principal architect of the scheme”, Chartered accountant and film producer Hayley allegedly made £8m, while Savill who recruited the investors benefitted to the tune of £13m. Meanwhile, Bevan scammed investors out of £5m.
The defendants are due to be sentenced at Birmingham Crown court on 24 June 2016.
Although, the gang claimed to have spent more than £250m on pre-production and development packages for film projects made in Monaco, a HMRC investigation discovered that they actually only cost £4m and had been created in Little Wing’s offices in London.
The fourth defendant, 65-year-old accountant Norman Leighton, has been found guilty of using his Monaco-based firm to perpetuate the deception that more than £250m was being spent on genuine activity in Monaco. He was paid £300,000 for his part in the scheme.
Rather than investing in films, most of the money was recycled through a network of offshore companies owned by Hayley, Bevan and Savill and was used to finance the limited recourse loans made to investors, which made the scheme effective as a tax mitigation scheme.
According to the tax office investigation, Hayley, Bevan and Savill falsified paperwork to deliberately mislead HMRC officers.
They arranged for companies, such as Guernsey-based Fat Cat Films, to be registered in the British Virgin Islands that supposedly operated in Monaco, Geneva and the Channel Islands. In fact, they were all fronted by the fraudsters’ family friends in the Philippines and Kolkata.
Each firm did little more than pass investor funds through their bank accounts, from one to another numerous times, to inflate the amount invested and therefore the scheme’s losses.
‘Huge win’ for HMRC
Dawn Register, partner at BDO, a firm that specialises in resolving tax disputes with HMRC, described the ruling as a “huge win” for the tax office, adding that it sent out a “clear and strong message” that those operating ‘dodgy’ tax schemes will be held accountable.
“The four individuals who signed up investors into what may have looked like legitimate tax planning at the time, are now likely to face lengthy prison sentences. This case shines a spotlight on some of the practices which are now proven to be illegal – the clue being in the offshore company named ‘Fat Cat Films’,” she said.
Register said the judgement will “add gravitas” to the ongoing legal disputes over similar schemes.
The ruling comes just months after HMRC won an appeal at the Supreme Court over £117m tax relief claimed by a film scheme involving the distribution rights to two Disney films. As a result, celebrity investors including Manchester United manager Alex Ferguson and ex-England coach Sven-Göran Eriksson now face a combined tax bill worth over £635m.
She urged investors to resolve their tax position with HMRC before April 2017, after which they could be subject to its new ‘naming and shaming’ laws.
“This decision will cause considerable woes to those caught up in tax avoidance enquiries with HMRC,” said Register of the new legislation.