The UK film industry has reacted with dismay to suggestions that, following an HM Treasury Review, the film and TV industries might not be able to access EIS (Enterprise Investment Scheme) relief.
In recent days, senior UK financiers have raised concerns about potential reforms to the EIS relief, which they say are being discussed by the Treasury and are mooted in the Government’s consultation paper‘Financing growth in innovative firms,’ part of the Treasury’s Patient Capital Review.
According to UK industry sources, HMRC has taken issue with the perceived lack of risk for investors in some film and TV schemes.
“What it (the Revenue) is trying to do is to move EIS away from guaranteed returns type schemes,” explained one experienced film financier.
“An important part of EIS is that the investors have to take genuine risks. What is reportedly concerning the Revenue is that there are schemes that are basically lending against pre-sales and the tax credit. That is not what EIS was intended for.”
In particular, financiers have referenced a passage in which the consultation paper asks whether ”there are areas where the cost effectiveness of current tax reliefs could be improved, for example reducing lower risk ‘capital preservation’ investments in the venture capital schemes?”
In a recent letter to its members, the EIS Association said:
”The message that comes through loud and clear from reading the Patient Capital Review consultation is that the Government has fairly substantial changes in its sights to ensure EIS and SEIS are laser focused on high risk, early stage investment. If anything from our discussions with HMT in the past few weeks, this message has only got louder and clearer.”
The issue was discussed at last week’s (21 Sept) British Screen Advisory Council meeting in London and insiders say reforms could be announced in the Autumn Statement in late November.
The creative industries — mostly film — accounted for about a third of the £650m public EIS market last year, according to one finance expert. But the use of EIS and the Government’s film tax credit allows investors a double dip at tax breaks, which has surprised some industry observers.
The deadline for written submissions to the consultation fell on Friday (22 Sept) at 11.45am.
A frantic last-minute lobbying campaign has been underway to try to ensure that EIS is preserved as a funding mechanism for film.
“The exclusion of media or creative content companies as an asset class from eligibility for EIS reliefs would be catastrophic,” said Avatar and Life Of Pi financier Ingenious Media.
“Specific concerns about ‘asset-backed’ finance, if there are any, can be addressed with the Treasury on a negotiated basis. We must not throw the baby out with the bathwater.”
This was a sentiment echoed by many others contacted by Screen.
Some speculated that the mooted changes may be down to the ongoing spat between Ingenious and HMRC but others warned that if EIS is “decimated,” it would result in drops to the volume and value of UK independent productions and some international films moving elsewhere.
In a letter to Chancellor Philip Hammond, film executives Paul Brett (The King’s Speech) and John Fields cautioned of the “potentially devastating effects” revisions of EIS rules could have on Britain’s film and television sector.
Alice De Sousa (A Street Cat Named Bob), CEO of Galleon Films, referred to the “annihilating impact” changes would have on independent British films in particular.
EIS expert Dave Morrison, partner at accountancy firm Nyman Libson Paul, pointed out that HMRC has been “particularly difficult” in dealing with film and TV EIS ‘advance assurances’ over the last 18 months.
“It (EIS) is a pretty abuse free scheme. You can’t scale it and you can’t gear in the way that used to be done with Section 48 (tax relief),” commented Loving Vincent producer Ivan Mactaggart, partner at Trademark Films.
“If it is being used in ways that Treasury don’t like, my hope is that they will find a way to adjust the rules to allow appropriate and genuine promotion of film EIS to continue. It would make no sense to throw an entire sector – a sector very important to the UK economy and that is doing well – out of that particular enterprise mechanism wholesale, because of a specific and limited number of schemes that don’t work in a way Revenue and Customs would prefer.”
Adrian Wootton, chief executive of Film London and the British Film Commission, cautioned that it is still too early to say whether EIS eligibility rules will be changed.
“What we are all concerned about is the law of unintended consequences,” Wootton said. “I don’t think this consultation is in any way aimed pejoratively at the film and television industries.”
However, Wootton acknowledged that any changes to EIS qualifying rules would have “a very damaging effect on film and independent television production in the UK.”
EIS, Wootton continued, is “almost the only allowable mechanism for getting private finance into independent features films that isn’t coming from distribution, conventional private equity or public and broadcast subsidy.”
The Film London boss predicted that big US studio productions and high-end TV dramas wouldn’t be adversely affected – but said that the independent sector would be bound to suffer. “The last thing we want at the moment is for an appropriate funding avenue to be cut off for independent film.”
Film London-backed title The Hungry, a recent premiere at TIFF, is just one of many recent features dependent on EIS for some of their budget.
The Enterprise Investment Scheme was launched in 1994 to encourage investments in small, unquoted companies, with financiers eligible for tax breaks in return for investment. Part of the idea behind EIS was to spark entrepreneurial activity.
The scheme is popular both in the UK film and TV sectors. Ingenious’s EIS Fund Shelley Media, for example, has backed such films as Mr Turner, Brooklyn and Carol. A 2017 media brochure for the company claimed that Shelley Media alone had raised more than £350m since its launch in 2010.
In 2016, HM Revenue and Customs revealed that more than £1.6bn was pumped into all EIS schemes in the 2014-2015 tax year. In the 2015-16 tax year, EIS and SEIS together contributed some £1.8bn in investment for start-ups and small and medium sized enterprises. Over the years, schemes have been used for everything from pub renovations and (until rules were changed) renewable energy.