New UK EIS rules get EU approval

The annual investment limit for qualifying companies under EIS will now be raised to £5 million (up from £2 million.)

‘It’s been a long wait but, as expected, the EU have ratified the £5m EIS raise limit. Was this a good bit of horse trading by the UK Government by asking for more initially or was it a knock-back?’ asked EIS expert Dave Morrison, from entertainment accountants Nyman Libson Paul, pointing out that the initial plans had been for the EIS limit to be raised to £10 million.

Morrison described the granting of State Aid approval as “great news for those able to raise £5m, ‘ but added: “it will be interesting to see if a few of the new larger raises soak up all the available cash in the marketplace and leave smaller films with a harder task. Perhaps we will see more EIS raises for slates rather than individual films.”

Some are predicting that the shake-up in EIS rules will be the spur for much “bigger players” to enter the market and that EIS funds will now be used for larger budget international coproductions. These won’t necessarily be films that will shoot in the UK.

Formosa Films’ Neil Thompson noted that “countries like Canada and Australia that have big tax breaks and European countries like Belgium and Luxembourg, where the tax landscape is quite advantageous for coproducers” are already beginning to look to EIS.

What could well happen (Thompson predicts) is that EIS funds raised in the UK will be used for films shot in soft money havens.

“If you’ve got quite a high profile project with quite a big cast and you can raise quite a significant amount of EIS in the UK, it means you can bring a $15 million type film to the market quite successfully,” Thompson commented.

In the past, when EIS was capped at £2 million, EIS-backed films tended to be smaller “gritty-Brit” type projects. Now, many are saying that EIS is likely to be used for bigger international projects that will shoot abroad.

“For EIS, you can spend anywhere. As long as you say in your legal documentation that this is what you intend to do, it’s fine. EIS is just a fund business. It doesn’t matter how UK centric it is. The only UK rule for EIS is that in order for investors to access the tax breaks, they need to be UK tax payers,” Thompson noted.

There is increasing evidence that top UK production companies are turning to EIS. Earlier this year, both Ruby and See-Saw announced they were going out to investors with EIS schemes.

Given the continuing uncertainty and anxiety over ongoing EC proposals to change state aid rules for film, UK industry sources are expressing relief that there is at least is now clarity regarding how EIS can be used.