In a letter to the Chancellor Philip Hammond, Tyrie acknowledges the film industry tax breaks were ‘too generous and ill designed’, and says the resulting complexity in the tax system has provided scope for confusion and also some abuse, with the result that HMRC has become involved in a long-running legal battle against avoidance schemes.

However Tyrie reports receiving an increasing number of representations suggesting the outcomes of these legal challenges ‘are not always fair nor what anyone could have expected.’

‘This has resulted in financial calamity for some of those involved and considerable difficulties for HMRC in bringing a large number of schemes to a close,’Tyrie writes.

Tyrie points out that investors have said that when the schemes were being sold, they were not considered to be aggressive avoidance, but just a deferral of tax, and were often marketed as routine tax management.

‘Whether or not these claims are valid, it does appear that many individuals are facing very severe financial distress as a consequence,’ he writes.

Tyrie goes on to take aim at HMRC’s approach, claiming that a number of firms and individuals have made suggestions for ‘an equitable and pragmatic’ way of bringing the matter to a conclusion after several years, but these have been rejected out of hand.

Tyrie writes: ‘The issue of “dry income” seems to be of concern. As I understand it, it means that individuals who have been denied any relief from their costs should nevertheless continue to be taxed on income from a partnership from which they never benefit.’

He challenges HMRC to provide a clear explanation of the underlying principles in such cases. He is also seeking assurance that the focus on the more extreme examples of tax avoidance schemes does not mean that other, less offensive, tax planning arrangements are becoming caught up in very long running enquiries.

Finally, Tyrie suggests the outcome of the Eclipse tax scheme case suggests there is a gap in how partnerships are treated, as there seem to be no provisions that allow legitimate costs association with financing a non-trading business.  He argues that this issue, and the consequence of taxing ‘dry income’ might form part of the current HMRC review of partnership taxation.

Tyrie said: ‘If a tax avoidance scheme is found by the courts to be illegal, then investors in the scheme have no option but to repay the tax that they have avoided. But HMRC needs to treat people fairly, including investors in what are now considered to be tax avoidance schemes, and to be transparent and timely in their approach. So I have written to the Chancellor about a number of concerns expressed to me.’

Andrew Tyrie’s letter to the Chancellor about film tax schemes is here.