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UK Budget 2012: EIS cap raised to £5m instead of predicted £10m; high-end TV, animation, games to get tax relief

EIS changes are still subject to EU State Aid approval; TV, games and animation tax relief could come into effect from April 2013.

As expected, the UK Budget has lifted limits for Enterprise Investment Schemes (EIS), which are frequently used by the film industry, although the boost wasn’t as much as predicted.

The previous cap of £2m to be raised in any 12-month period by an EIS has been increased to £5m (the cap had been predicted to be increased to £10m).

From April 2012, the EIS annual investment limit for individuals will be increased to £1m (from the previous £500,000).

Qualifying companies can now have up to 250 employees (instead of the previous 50) and can have assets before investment of £15m (up from £7m) or £16m post-investment (up from £8m).

These measures are subject to EU State Aid approval, so the industry still doesn’t have final clarity about how to use EIS.

Chancellor of the Exchequer George Osborne [pictured] presented the Budget to Parliament earlier this afternoon.

As expected, the Budget also confirmed the new Seed Enterprise Investment Scheme, which will provide income tax relief of 50% for individuals who invest in shares in qualifying seed companies [as well as a capital gains tax holiday on such investments.] Experts say this would be most appropriate for financing of film at the development stage.

In a move described by senior film and TV industry experts as a potential “gamechanger”, Osborne confirmed the anticipated corporation tax reliefs for the “high-end television, video games and animation” industries from April 2013, also subject to State Aid approval. The proposal is now out to a 12-week public consultation.

Recent research has suggested that the tax credit for TV could generate up to £350m per year as a result of big-budget TV shows relocating to the UK.

The increased flow of high end TV production and animation into the UK is likely to benefit film services companies, producers and the interaction between talent working across the three sectors.  

It is as yet unknown what the qualifying thresholds for “high end” drama will be. But using the film industry multiplier calculated by Oxford Economics, the benefit of a new incentive would be £13 to UK GDP for every £1 of tax relief given.  Based on a spend of £350m per year, a tax incentive of 20% of UK spend would mean a return of £1bn per year to the UK economy and wider benefits to regional economies.

The TV industry widely welcomed the announcement.

Glenn Whitehead, executive vice president business and legal affairs at HBO, said: “The UK is one of the best places in the world to film as it has highly skilled people and exactly the right infrastructure to make great television. Today’s news on a new tax incentive has turned the UK from one of the most expensive options into a competitive and affordable location. We would therefore love to bring more production to the UK. We were pleased to base Game of Thrones in Northern Ireland, where grant funding was made available. Our investment, which totals tens of millions of pounds, has had a major impact on job creation and long term infrastructure, benefiting that economy hugely.”

Charles Moore, partner at Wiggin LLP, added: “The tax incentive should be straightforward to introduce as it can be structured in the same way as the existing film tax credit which has proved to be an effective and efficient mechanism. The result would be that only culturally British projects would receive the incentive and the benefit to UK jobs, skills and investment would be enormous.”

In another announcement with significant knock-on effects for the film industry, the Government announced that ten cities - Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle – will become “super-connected cities”, as part of the £100m broadband investment announced in the Autumn Statement 2011.

By 2015, the Government hopes to deliver “ultrafast broadband coverage to 1.7 million households and 200,000 businesses in high growth areas as well as high speed wireless broadband for three million residents”. The Government also announced that it will provide an “additional £50m to fund a second wave of ten smaller super-connected cities” and that it will extend mobile coverage to 60,000 rural homes.

In other announcements with potential implications for the UK film industry, the Chancellor announced that small firms will be taxed on the amount of cash passing through their businesses rather than more complicated methods used for large companies, the Government will introduce twenty four “enterprise zones” across the UK, young people could get loans to start-up businesses and Boris Johnson will get £70m to develop new infrastructure in London.

More analysis and industry to follow on ScreenDaily.com later today.

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