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UK's EIS proposals still await EU approval

HMRC officials have acknowledged today they don’t know when or if EU State Aid Approval will be given to proposals to lift the cap on the Enterprise Investment Scheme (EIS) ifrom £2 million to £10 million ($15.7 million) next April.

Speaking this week at a seminar on EIS organized by accountancy and consulting firm RSM Tenon Media, HMRC officials Des Ryan and Kathryn Robertson talked through the Government proposals for EIS and their implications for film.

“They (Europe) dictate the timetable,” Robertson commented. “Discussions are ongoing. That is all I can say.”

The officials revealed there is no guarantee that any final EU decision will be made before the start of the next British tax year in April.

However, the HMRC officials made it clear that it was not the Government intention to “exclude” film and creative industries from using EIS.

When HMRC published its consultation document in the summer, it set out a series of “tests” to determine the eligibility of companies usng EIS.

Many responses to the consultation paper said that these tests could have adverse effects on film and the creative industries.

These tests have now been dropped. The new legislation, HMRC has stated, is “not designed to catch normal commercial arrangements in film and creative.”  Nor is it intended “to catch the normal film industry practice of an SPV (Special Purpose Vehicle) to make the film” or to “stop the normal film industry practice of employing subcontractors as and when necessary.”

“What we are trying to stop is artificial arrangements,” Ryan commented of the disqualifying arrangements that are now in place.

Film industry attendees at yesterday’s seminar said they were broadly reassured by what the HMRC officials had to tell them.

Ivan Mactaggart, a partner at Trademark Films, predicted that in spite of the uncertainty around the timing of the EU State Aid approval, the green light would eventually be given. “You to assume that (Britain) wouldn’t submit something (for approval) that we didn’t have a very good idea was likely to get through, even if in some modified form.”

“Their explanation of the intentions behind the changes in the legislation was very reassuring. The important thing now is to make sure that the wording matches the intentions,” Mactaggart commented. “As far as EIS is concerned, I think it is a fantastic scheme and these changes improve it.”

Libby Savill of Olswang applauded the HMRC officials for agreeing to “face a whole heap of (film) industry people” at the seminar.

“It’s an excellent sign that they’re positive about this and they’re positive about its application to the film industry,” Savill stated. She suggested there were still areas surrounding the draft legislation that need to be addressed. The “disqualifying arrangements,” she noted, were “drafted very widely” and film companies could still fall foul of them.

“It did seem they (the HMRC officials) were open for comment and encouraged people to submit comment,” Savill commented

In the short-term, the much heralded EIS boom for film has been put on hold. The changes won’t be in place until April 2012 at the earliest. “Fund raising season,” the key time for putting together EIS Funds, is usually in January, February and March – just before the end of the UK tax year. The delay in the EU approval and the completion of the legislation therefore means that it is unlikely to be until next year that the film industry will feel the impact of the proposed changes.

Readers' comments (1)

  • Why all the fuss about the proposed £10m cap increase. Do people in the industry think there is a mass of investors waiting to pile into film, currently holding back as £2m is not enough to risk on a film? The only firms that might benefit from the increase are the likes of Ingenious and Octopus who use the EIS to cashflow pre-sales, with little net risk contribution to film budgets. It will just be reduced admin for them (unless the proposed new rules catch them out). The abuse of the film partnership rules, still going through the HMRC Commissioners, have tarred the reputation of films for years. Plus anyone trying to raise over 2.5m Euros will face an expensive fund raising as they fall outside the promotion exemptions.

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