ASK & DISCUSS
INDEXEIS, is it really suitable for one off films?
11 years, 2 months ago - Marlom Tander
I've been reading up on EIS, and have talked to the EIS specialists at HMRC and I'm not sure it's all that some people think it is.
What have I missed?
1) EIS investors get income tax relief on their investment, making any losses less upsetting :-)
Now if everyone expects the film to fail commercially EIS is just a lovely way for angels to support a project by a producer they love.
Failed projects don't forfeit the tax break.
THE PROBLEM is one of timing for movies that want to be a commercial success when they seek investors interested in profits, (and thus likely to be alert to the tax implications of the film business model):-
2) EIS investors get TAX FREE Capital Gains if the shares a sold at a profit after three years or more.
3) EIS investors are liable for income tax at the full rate on any dividends, at any time.
4) If the shares are sold WITHIN 3 years, the investor needs to repay the tax relief they were given.
Example :-
a) Fund Dec 2014. Shoot 2015. Revenue flows 2016-17, and flows out as dividends. Process continues until revenue becomes negligible.
Investor gets dividends, but pays full tax on them.
b) As above but in late 2015 you premiere at AFM and BigCo says "we'll buy you".
Instant profit. All taxable under CGT rules, and the investors also have to repay their tax relief as within 3 years.
MY VIEW (and also that of the Revenue chap I spoke to - in fact he said words to the effect that he was always surprised when people tried to EIS single films), is that EIS to fund A film just isn't very tax efficient, but that to fund MORE than one can be, as it opens the door to the tax free capital gain by creating a vehicle with a longer life, and any expected future revenue stream can be converted to a capital gain by selling out.
Example:-
Fund Dec 2014. Shoot first film 2015. Revenue flows 2016-17, and is used to pay for Film 2, which is shot in 2017 and a deal is done at AFM in Nov 2017 to sell out in Jan 2018.
Now that more than three years have past since the shares were purchased, that gain is tax free.
If no deal is done and money flows out as dividends, ce la vie. But at the time the investment was made, the structure offered the prospect (if all went well) of a tax free sale.
For a typical EIS investor the difference between income taxed outcomes and tax free ones is that the tax free one pays nearly double.
Is the above right, and if so, do you feel more comfortable pitching a single film that doesn't fully use the EIS advantages, or a 2+ slate that does?
Thoughts?
P.S and the next time I see an article that says the Producers Credit is 25% I'll shout a bit. It's max 25% of 80% of spend, i.e. max 20% of budget. Grr. :-)
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11 years, 2 months ago - Marlom Tander
1) http://www.hmrc.gov.uk/manuals/fpcmanual/FPC55020.htm
An FPC can claim FTR on the lower of either:
80% of total core expenditure; or
the actual UK core expenditure incurred.
So it's not 25% of production budget, it's 20% (at best).
(For films under 20M).
2) EIS
I'm interested in your comment re multiple finance streams being an issue.
Is it a budget dependent thing? I'm looking only at projects that can be brought in well within the 5M limit for EIS, (in fact sub 1M, and, if they work, in my dreams, maybe 3M). There did seem to be anti-avoidance designed to stop EIS being used in "cunning plans" and bigger projects but I didn't pay much attention as I'm not playing at that level.
Cheers
11 years, 2 months ago - Paddy Robinson-Griffin
The tax credit thing is complex, all to do with how it's presented too. I deliberately keep well clear of the finance side these days as it's always ugly.
EIS - well I know for instance it's not compatible with Ingenious and their clever interpretation of how to invest clients money. Not sure why, but something to do with mixing equity and loan finance I suppose.
All tax schemes are stretched for 'cunning plans' of various sorts. If you're under £1M (and remember, films frequently cash cost a lot less than their budget), would an SEIS be better for you? Better rate of tax relief, and combined with your tax credit you're looking at an investor risk of around 40p in the £. I did set up an EIS once in the past, surprisingly easy to do yourself, but you may find it more profitable to take the potential investors you have to a financier/financial producer and see how they can leverage/gear the production for you. If you've got say 250k of cash investors already interested, PM me and I'll make an introduction for you. I keep well away from that side now, as I say, it's never pretty, and having seen some of the sharks and crooks you have to deal with, I'm happy to spend, not raise the money!
11 years, 2 months ago - Paddy Robinson-Griffin
@Marlom Tander jfyi Ingenious only take a handful of non-studio projects a year, and then ones where the people behind it have a track record. If you can't show you've delivered successful projects previously it might be a hard ask.
Like all film finance schemes though, they will not come in for more than x%, so you're still trying to cobble together the cash. From what I've seen, though, there are no 'straightforward' films made, there's only a massive pile of complex inter-company loans, partnerships, tax schemes, pre-sales (if you have a track record), etc. Which is why I steer wide, now.
The offer still stands though - if you have some real cash investors and want to talk to a guy who can handle the gearing, loans, tax, etc I can introduce you. I've just delivered a film to him on time and budget, so we're on good terms, and he's financially produced around 40 movies over the years.
11 years, 2 months ago - Marlom Tander
@Paddy Robinson-Griffin
ta for that. SEIS doesn't seem to work, too low a limit, but I'll have word with the producer and see where he is on the money side. I know he's excited, but then he wouldn't be a good producer if he wasn't :-)
I'm focusing on writing and (because I used to be in finance), the boring budgeting stuff, not the deals, (I lack the diplomatic touch which that dance requires!)
I haven't looked in great detail at Ingenious because I'm not interested in doing cunning plans. Bankers have done quite enough of that recently :-)
11 years, 2 months ago - Paddy Robinson-Griffin
Firstly, DCMS -
Value of UK tax relief
for films with a total core expenditure of £20 million or less, the film production company can claim payable cash rebate of up to 25% of UK qualifying film production expenditure
for films with a core expenditure of more than £20 million, the film production company can claim a payable cash rebate of up to 20% of UK qualifying film production expenditure
As for EIS - there are likely various structures producers could put around the investment and production vehicles to make profit only appear after 3 years - a 'slate' being one, but by selling distribution rights to another company that will pay later/whatever. That said, as great as it seems, I've not seen any films recently funded via EIS as it's not necessarily compatible with other finance streams, and films need multiple streams.
11 years, 2 months ago - Paddy Robinson-Griffin
The DCMS tax credits applications are not that onerous, and I can't imagine any British film that makes it to market NOT having taken advantage of the actually pretty generous scheme. No other sector except defence gets the same level of public money support! You need to score 16 out of 31 points*, and for any genuine home-grown production it's a doddle. You do also need to be a limited company of course.
EIS - the chief limitation is that the risk must be spread over multiple backers, so can't just be used as a one-man money laundering scheme.
*actually I think that's changed, but it's still in the region of scoring half-marks, and easy
11 years, 2 months ago - Marlom Tander
This is all good stuff - Paddy I mentioned your kind offer to the producer, so will drop you a line when he feels he's got that level of serious interest.
Yen - I'm aware of the connected persons rules. Not an issue in this case.
Both projects are totally British and yes, the tax treatment of movies is absolutely fabulous :-)
Cheers all
11 years, 2 months ago - Yen Rickeard
Tax schemes are complex, but as Ii understand it, it also depends on who you are getting your funding from. It doesn't work for money you put in yourself or for any other person with 'a substantial interest' in the company, like any close relative, or any collaborator.
There are tax advantages for any film that can be classed as 'British' by means of where it is shot (Britain) writer, major members of the crew or cast, cultural elements (story) etc. These have to be substantial.
You can spend an awful lot of time looking for tax breaks - time perhaps better spent on making sure that your film will get distribution of some sort and make money.
I'd be happy to have a HUGE tax bill- it'd mean an even huger profit.
Good luck with it
Yen Rickeard