The Court of Appeal has dismissed the taxpayer’s appeal in relation to discovery assessments, confirming the decisions of the FTT and Upper Tribunal (Good v HMRC  EWCA Civ 114).
By the time this case reached the Court of Appeal, the challenge was limited to the scope of ITTOIA 2005, s. 609-611. These sections are concerned with films and sound recordings, and specifically with the taxation of “a business involving the exploitation of films or sound recordings where the activities carried on do not amount to a trade”.
The Court of Appeal confirmed the decision of the Upper Tribunal that the taxpayer had (under the terms of the distribution agreement) retained an interest and benefit in certain minimum annual payments (MAPs). Furthermore, the MAPs were income from a film business in which the taxpayer was participating.
The court acknowledged that the result was harsh:
“Not only has he lost his initial investment of £300,000 in the Scheme, but in addition he is liable to income tax on income which he never himself received; the tax bill is around £180,000 for the three years of the Scheme so far considered by HMRC, with enquiries into two other years remaining open. Financially, the taxpayer’s investment in the Scheme has been disastrous.”
However, this could not have a bearing on the interpretation or the application of the statutory rules.