Revenue Clampdown on EIS

Mid Budget films are expected to be hit hard by the clampdown on Enterprise Investment Schemes (EIS)

The changes to EIS, announced by HM Revenue & Customs (HMRC) in the pre-budget speech last week, mean it will no longer be possible for several different EIS companies (each capped at $3.3m (£2m) to contribute to the same film via a partnership or limited liability partnership (LLP). This practice, referred to by some as “daisychaining,” has now been outlawed.

While mid-budget films, in the $3.3m to 16.4m (£2m to £10m) range, are expected to be worst affected, some big budget features will be also be stymied.

Goldcrest Film Production LLP, set up earlier this year to support British films in the $3.3m - $13.m (£2m to £8m) ranget will be unable to raise further funding under the EIS. The fund, which has an advisory board including such industry heavyweights as Michael Kuhn, David Parfitt and Graham Broadbent, aims to provide 20% of a film’s budget. Goldcrest has provided post-production services on several independent British films already including Centurion (pictured), St Trinian’s 2: The Legend Of Fritton’s Gold (pictured) and Ken Loach’s forthcoming, Route Irish.

Adam Kulick, a partner at Goldcrest, said: “Films in the £2m to £10 million range are cobbled together from a variety of different sources many of which have been drying up recently due to the collapsing debt markets and the lack of liquidity for equity. These EISs were playing an enabling role in order to help a producer close financing and were geared toward British production.”

Kulick pointed out that HMRC clampdown is not “retrospective” and so will not affect any EIS fund raising completed prior to the pre-budget report (or funds raised under the auspices of an HMRC advance assurances) as was the case with Goldcrest Film Production LLP. “We will therefore be able to proceed with a slate of mid-budget range of British films.”

He added that Goldcrest’s overall strategy of building a company covering post-production, sales, financing and production would remain the same. “However, we have to re-evaluate the method by which we finance the making of British films following the changes.”

The changes will not affect financiers using individual EIS funds such as financier and production company Matador Pictures. Founder Nigel Thomas, said: “We welcome the changes because it takes out of the system some of the people who are pushing the envelope. Overall, that is damaging to everyone. There comes a point when the Government just gets so fed up with the abuses that they close the whole thing down. I am glad that they (HMRC) are focusing attention on EIS as it is supposed to be operated.”

Thomas added that the idea of using EIS to fund very big budget, star-driven movies does not make sense. “It shouldn’t have to rely on wheezes like daisychaining EIS’s together. Such films should be possible to finance out of the marketplace in a conventional manner.”

Christine Corner, a partner at accountants Grant Thornton, pointed out that EIS daisychaining was a relatively new practice, which she believes will limit the impact of the changes. “It was at the margins but it was something that probably would have taken off a bit more,” she added.

“Generally, producers are struggling because there isn’t much finance out there at all. There is a lot less gap finance, banks have pulled out - it is getting harder to get films financed.”

(Source Screendaily)