Ingenious Games LLP – Court of Appeal of England and Wales agrees with Backman that a partnership need only have an ancillary profit-making intention

In order for the investors in UK limited liability partnerships that had funded films to be allowed their share of the LLP losses that had purportedly been generated, the LLPs were required to be fiscally transparent. This required that the LLPs carry “on a trade, profession or business with a view to profit" - and, in addition, for the LLPs to have been validly formed as a matter of the statutory commercial law, they also were required to represent "two or more persons associated for carrying on a lawful business with a view to profit."

Before finding that the “with a view to profit” test had been satisfied, the Court of Appeal noted the following principles:

  • “[T]he words ‘with a view to profit’ import a wholly subjective test” rather than an objective test.
  • "[P]rofit" has an objective meaning” so that if “putative partners only have a view to making what they wrongly believe to be profits, for example gross revenue, they will not have a view to profit.”
  • “[T]here is no maximum period during which the partners must intend to make a profit, although no doubt the longer the period the more searching the inquiry into the real subjective purpose of the partners."
  • “[I]n broad terms, ‘profit’ has the basic meaning of an excess of income over costs over a possibly indefinite period. It follows that the complex mosaic of generally accepted accounting practice … will generally have little part to play.”
  • “[T]he view to profit need not be the predominant subjective purpose, but it must be part of the partners' subjective purpose.”

The Court noted that many of the above propositions were supported by Backman – quoting, for example, the statement in Backman that it “will be sufficient for a taxpayer to show that there was an ancillary profit-making purpose."

Although the taxpayers succeeded on this issue, the bulk of the £1.6 billion in losses that had been claimed by the investors in these and similar LLPs nonetheless were disallowed because of an unreversed finding below that most of the LLP expenditures were capital expenditures rather than being on income account.

Neal Armstrong. Summary of Ingenious Games LLP & Ors v Revenue and Customs [2021] EWCA Civ 1180 under s. 96.