Did anyone not look out for George Osborne’s name featured in the "Star Wars Episode VII: The Force Awakens" movie credits? What a great moment that was, silver screen recognition of the UK government’s support for the creative industries in a film sequel that has traditionally been so… “Americana”.
It’s no secret: the UK has become THE place to make/produce/finance a film. And although the British are well known to provide world class artistic talent to feed the country’s £84.1 billion creative market sector, the government provides the much needed backing for turning such creative intellect into money making ventures. So it should come as no surprise that the SEIS and EIS schemes provide one of the most important incentives to attracting private investment into film creation.
The laws governing SEIS and EIS for film have changed numerous times and in different ways over the past few years, and I am constantly approached by entrepreneurs with misconceptions as to what actually qualifies for the schemes. Presented below are three key areas that I’m often asked to clarify with relation to attaining advance assurance for film projects:
- Companies set up for the production of single films are not typically eligible for SEIS or EIS status. - This is an area which I side with HMRC and the related changes made to the laws in November 2014 under the New Finance Act. EIS and SEIS were set up to assist with the “growth and development” of companies. By creating a company for the sole purpose of filming or producing a single film defeats the purpose as companies should be established to trade for the long term, create permanent jobs in the UK, and consequently provide a continuing stream of taxation income for the country. Darth Vader may "find my lack of faith disturbing" here as there are indeed exceptions to this rule which may come up, but it is more likely than not that a single film production company won't attain SEIS or EIS status.
- The Company applying for SEIS or EIS must be a UK entity or have a branch in the UK. - Although this is a requirement for all companies irrespective of industry, I am highlighting it here as I get asked practically every time a film entrepreneur is looking into the schemes, as a large proportion of films have filming locations across a number of countries. Additionally, international talent is often employed and may be deemed a critical part to the company’s success. As a result of this international nature of film making, entrepreneurs are faced with many options and sometimes may get completely overloaded with structuring choices. To state it bluntly: for anyone interested in attaining SEIS / EIS status for a film enterprise, in order for the company to qualify, a permanent establishment in the UK is required. Although most companies applying for the schemes are private unquoted UK registered limited companies, businesses registered outside the UK can still avail of the schemes.
- When it comes to co-production, tread very carefully. - Many films get structured as co-productions which are essentially legal agreements between specific countries aimed to promote trade relationships. Tax and other governmental incentives may be available for specific work performed in each territory, and often times co-production agreements enable a company to avail of them in both territories. As you can imagine, an administrative burden is created on the tax authorities to ensure that excessive tax incentives aren't availed of. Take Yoda's advice here: "Do. Or do not. There is no try." What Yoda and I are trying to say is that HMRC can be critical of co-productions. With relation to the schemes, companies with such agreements should provide transparency with relation to where the title of the work created will reside in, as well as which entity will hold any intellectual property. Casting may also come under scrutiny if a significant proportion is from outside the UK. As co-production agreements vary from each other, it is difficult to generalise and provide “rules of thumb”; as such each case is carefully evaluated by HMRC.
Other forms of government support for films, such as governmental grants as well as the film tax rebate scheme are currently on offer. Grants may be available to promote filming in specific locations. Film tax rebates allow film production companies to claim payable cash rebates of up to 25% of qualifying film production expenditure.
A while back we had featured a blog called “10 reasons why your low budget film production will never get financed”. Although new legislation has been introduced since first publishing it back in 2014, it still provides useful pointers on how to go about raising finance.
There are many other rules around what qualifies for SEIS or EIS, so it is best to speak to an advisor before submitting an application to HMRC. If you have any questions, I may not be Luke Skywalker, but "I am here to rescue you" (or at least give it my best shot).
May the Force be with you (sorry but had to fit that in).
Written by Vasiliki Carson
As a partner at Sapphire Capital Partners LLP, Vasiliki specialises in advising clients in regard to Patent Box as well as SITR, SEIS and EIS schemes, writing business plans and financial models for clients. Prior to co-founding Sapphire Capital, Vasiliki was with PwC and Goldman Sachs in Tokyo and New York. Contact her by email at email@example.com or view Vasiliki's full profile here.