The beleagured UK film industry has received yet another blow with limits announced to the Enterprise Investment Schemes (EIS) that had been seen as one of the brighter prospects for revival.

Chancellor Gordon Brown announced in his Budget that there would be a limit of $3.9m (£2m) on qualifying investment eligible for EIS relief in a 12-month period.

EIS was considered as a bright prospect for a number of companies in combination with the new UK tax credit, particularly to back slates of films.

The changes are believed to have been driven from the European Commission which has been strictly regulating what qualifies as state support. The Commission last year insisted on major changes to the UK's proposed tax incentive to meet trade rules.

The UK Film Council says it is looking into how big the impact would be on film, although it is only expected to effect schemes set up after the legislation comes into effect next year.

UK Film Council chief executive John Woodward said:'Today's move by the European Commission on restricting EIS schemes will affect a number of industries including film. It is certainly not what the Government, the industry or the UK Film Council would have wanted and neither was it expected.

'However, the fact is that the UK Government has to work within the confines of EU state aid regulation. Of course this is as a setback but we need to let the dust settle on the technicalities, take stock and start to figure out a new way forward for investors.'

A number of businesses have recently set up, working with EIS and the new UK tax credit. Visible Films, for example, is an alliance between Samuelson Productions, Ecosse Films and Recorded Picture Company that has been widely praised for its innovative approach.

'The UK tax break with EIS lowers the threshold for making a profit and rewards success, allowing you to get super profits,' Visible founder Anne Sheehan told ScreenDaily earlier this month.

Speaking today, Marc Samuelson, of Samuelson Productions said though there appeared to be no impact at present, it was not yet clear how future work might be affected

'It does not seem to have any immediate effect but having said that we need to think carefully about it.'

It comes at a bad time for the UK, which is recovering from the collapse of so-called GAAP funding and the temporary but disruptive clampdown on sale and leaseback funding.

'This continual tinkering with the tax efficient investing offerings (VCTs and EISs) is not helpful,'commented Martin Churchill, editor of Tax Efficient Review.

'The £2m maximum size is a major blow to the ability of investors to support new and growing companies through EIS offerings. I think the number of EIS offerings following the introduction of this new limit in the 2007 Finance Act will be severely curtailed as the fund raising costs on such small offerings could be prohibitive.'

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