As the Enterprise Investment Scheme celebrates its 25th anniversary it is casting a dark cloud over the British film industry, which it has become the single most important source of funding for.
The scheme, which allows qualifying investors to write off 30% of their investment against their income tax (along with other incentives) has been an incredibly popular one and has allowed hundreds of British films to be made. The wheels appeared to come off last year, however, when the rules were changed with the introduction of a ‘risk to capital condition’ which effectively precluded investments in film production, even though HMRC’s guidelines suggest it is still achievable.
Producers need to receive ‘Advance Assurance’ from HMRC that their business plan will qualify for EIS tax relief and since Spring 2018 what initially appeared to be long delays soon became a log jam of rejections. Earlier this year, Ingenious, one of – if not the – biggest source of EIS funding for films – pulled all of their EIS media offerings and while some producers are prepared to wait more than a year for a decision on whether they qualify from HMRC, many others think the game is up.
American movie bible Variety recently ran an article about fund Great Point Media’s new (media, but non-production) EIS investments but noted “The Enterprise Investment Scheme structure in the U.K. has been extensively used to help finance independent film, but following an overhaul of the rules by British authorities the relevance of EIS funding for film and TV has been questioned.”
Talking exclusively to us, Jonathan Sothcott, one of the UK’s most established and prolific independent film producers and an expert on tax efficient film investment gave us his views on the uncertain film finance/EIS landscape. “I think the idea that there are hoops you can jump through to qualify film production for EIS is total fraud. It is dead in the water and the industry either doesn’t want to or simply hasn’t woken up to it yet. The film companies getting the advance assurance are basically technology offerings in a media wrapper which just aren’t sexy enough for investors.”
HMRC did not respond to our request for clarification but a tax specialist at a leading law firm, who wished to remain anonymous told us: “EIS for film production is dead and buried. Too many producers spoiled it with pre-sales which basically secured investors’ money so they were getting tax relief with no risk. But its frustrating because I think the DCMS have a duty to support the British Film Industry and there’s no sign of any alternative structure. There’s going to be huge fall out from this.”
Sothcott also told us “it really is the era of investor beware – there are some naughty producers claiming to have advance assurance for film production and even listing the benefits on their websites. They’re either telling porkies or out to rob people which is sadly all too common in this game.”
Of course, there’s still the UK Film Producer’s Tax Credit, a rebate producers can claim back from HMRC once production wraps, usually equating to around 20% of the budget. Although some producers use this as ‘first money back’ for investors, it lacks the old EIS benefits of no capital gains tax, loss relief if the business fails and even the basic security of comfort from HMRC. City rumours suggest that the Tax Credit could be raised to as much as 30% but Sothcott is sceptical “even if this was true, it will benefit American films being made at our studios more than anyone else – it’s a rebate on spend, not an incentive to invest in homegrown creativity. There’s an important difference. Similarly there’s talk of more soft money from the British Film Institute but to me that goes completely against the grain of being an independent. I want to make films my audience wants, not films some public body approves.”
We expect this issue to become more prominent after the hoopla of Cannes subsides as without an alternative the independent sector of the British film industry could well be headed for a crisis.