Public Accounts CommitteeWritten evidence from Ingenious

Ingenious

Ingenious is an investment and advisory firm employing some 200 people with a sector focus on media, sport, leisure and clean energy. I believe that we are the largest independent investors in media and creative content in the UK having raised more than £8 billion since 1998. We recently extended the scope of our investment activities into leisure, sport and clean energy. In the year ending April 2012, Ingenious posted £35 million profits on which we paid £8 million in corporation tax.

We are focused primarily on commercial ventures in the high-risk creative industries, a sector of such crucial importance in the UK.

Everything we do has a commercial engine attached to it and is designed to deliver trading profits.

In particular, our partnerships have financed or co-financed to date 103 feature films, including such successful commercial movies as Avatar, 127 Hours, Hotel Rwanda, The Best Exotic Marigold Hotel, The Descendants, Die Hard 4, Shaun of the Dead and The Golden Compass (see appendix 1). Our latest film is Life of Pi which has just opened in the US to excellent reviews and is based on the award-winning novel by Yann Martel, a work that defied several previous efforts to get on to the screen.

Film is, however, only part of what we do. In television we have worked with all the major broadcasters and produced more than 600 hours of prime-time TV drama, including Foyle’s War, Rev, Doc Martin, The Suspicions of Mr Whicher and Primeval. Our experience of producing children’s animation includes

Fleabag Monkeyface and Pajanimals. Through Ingenious Games we have funded both console based video games (Colin McCrae: DiRT and Fuel) and mobile games. In the past we have also funded recorded music, including albums by Peter Gabriel and The Prodigy; we now focus on music festivals and other live events, such as the “Taste” and “Rewind” festivals.

We carefully choose projects, be it a film production or a live music event, to invest in and then provide those projects with the appropriate support to bring them to market. Through our approach, we have achieved a highly successful track record which has meant that we have been able to secure further investment and expand our range of activities as set out above.

Our investments embrace a wide range of business models and risk profiles. We occupy a unique position at the high risk end of the risk spectrum acting as a bridge between the worlds of finance and creativity, bringing together individuals and businesses to produce various forms of content, for a wide variety of media and entertainment platforms. The activities of all content-creating businesses are based on a complex and unpredictable, “hit-driven” relationship to the market. This is explained more fully in our written evidence to the Commons Culture Committee’s current inquiry into Support for the Creative Industries. This is published by Parliament here:

http://www.publications.parliament.uk/pa/cm201213/cmselect/cmcumeds/writev/suppcrec/sce03.htm

Film is generally acknowledged to be a risky form of investment. There is substantial evidence of market failure on the film financing side of the industry. That is why successive British governments have taken measures to encourage private investment. We have always worked with the grain of public policy, respecting the spirit as well as the letter of the law, engaging with HMRC at crucial moments in the roll-out of policy and acting as a sounding board for the Revenue’s Film Tax Unit.

Moreover, through our work we have:

1.helped produce a great number and variety of creative works;

2.helped create a large number of jobs in the creative industries in the UK; and

3.produced taxable income for the UK Exchequer of £600 million from our film slate with a further taxable income of at least £1 billion expected .

HMRC

We have always sought to have a clear and constructive relationship with HMRC. We have disclosed full details of all our film partnerships to HMRC and cooperated fully with them to build their understanding of the associated commercial arrangements. Unfortunately, we have found that HMRC have responded with repeated inefficiency and, by its own admission, mismanagement.

HMRC’s current stance suggests an unwillingness and/or an inability to differentiate our partnerships’ proven commercial investment strategies from other companies’ arrangements. It also points to a policy of making “tough” pronouncements against investors whilst ceding actual decision-making responsibility to the Tribunal—a policy which is unsustainable in practice, a drain on the public purse and, we believe, more to do with politics than just or effective governance.

The Committee’s Concerns

I understand that the current interest of your Committee arises from the recent report of the National Audit Office (NAO) on Tax Avoidance: tackling marketed avoidance schemes (HC 730). This report refers to amongst other things, partnership loss schemes and their relationship to film financing.

The most important point to register with the Committee in this regard is that we do not market “tax avoidance schemes”. The report cites the HMRC “working definition” for tax avoidance of “using the tax law to get a tax advantage that Parliament never intended”. Everything Ingenious does has a commercial profit motive attached to it and is designed to deliver trading profits. It is true that our investors were able set off early stage losses in our partnerships against other income but that is not unique to film and is in precisely the way in which Parliament intended, through sideways loss relief, to encourage investment and enterprise. And more often than not, the losses incurred in the early years are more than offset by the profits (which are taxable) which arise in later years. That after all is the purpose of our investment partnerships.

For these reasons, we are at a loss to understand why it may be considered that we market tax avoidance schemes.

Patrick McKenna
Ingenious Media

4 December 2012

APPENDIX 1

INGENIOUS FILMS TITLE

127 Hours

A Good Year Alien Vs. Predator Amazing Grace A-Team, The

Australia

Avatar

Baggage Claim Bel Ami

Best Exotic Marigold Hotel, The

Big Nothing, The Big Year, The Blackball

Book Thief, The Brick Lane

Bride & Prejudice Bronson

Rise of the Planet of the Apes

Children of Men

Children, The (fka The Day)

Churchill: The Hollywood Years

Closer

Counselor, The

Country of My Skull (released as “In My Country”) Dawn of the Planet of the Apes

Decameron, The (released as “Virgin Territory”) Descendants, The

Diary of a Wimpy Kid

Die Hard 4

Die Hard 5

Double, The

Dragonball: Evolution

Enduring Love Eragon

Fantastic Four 2 Fantastic Voyage Far North (fka “True North”)

Flyboys

Foster

Four Last Songs

Garfield: A Tail of Two Kitties

Girl with a Pearl Earring

Golden Compass: The Northern Lights

Trance

Tucker & Dale vs Evil

Unstoppable

Untitled Nicole Holofecener Project Vanity Fair

Vera Drake Walker, The Watch, The

Water for Elephants

Waz

Wimbledon Wolverine, The

X-Men 3: The Last Stand

X-Men: First Class

X-Men: First Class 2

X-Men Origins: Wolverine

Young Hannibal