UK Budget 2012: UK film industry welcomes TV tax relief, but wants update on EIS approvals

“Up until very recently, we were told we can talk about anything but don’t talk about tax credits (for TV),” said John McVay, head of producers’ trade body Pact. “Clearly, the recent trips to America and the successful lobbying by our friends in Burbank made a difference. It is great if that brings more inward investment and maintain more high-end drama here (in the UK.)”

“On the TV front, it is positive both for the local producers and it’s great news too for some of our international producers, who would very much like to make their television here,” said Libby Savill, Head of Film and Television, OlswangLLP.

However, several film industry observers have expressed wariness about the continuing uncertainty surrounding the Enterprise Investment Scheme (EIS), which is yet to be granted EU State Aid Approval.

In particular, they have focused on the decision to lift the annual investment limit for qualifying companies under EIS to £5 million instead of the £10 million originally proposed.

“In the light of reviewing the evidence needed to deal with the (European) Commission, the Government came to the conclusion that it looked as though investment was best focused in that area,” HMRC official Kathryn Robertson said of the £5m cap.

EIS expert Dave Morrison, from entertainment accountants Nyman Libson Paul, called the reduction “a bad news story buried in the Budget Report.”

His remarks were echoed by those of producer Mike Downey of Film & Music Entertainment. “The reduction from the proposed £10 million to £5 million per scheme is a body blow,” Downey said. “The fact that the European approval on state aid has still not been confirmed means that film makers find themselves in limbo again - and that investors will be very cautious about investing in anything that has not been fully approved. Meanwhile a number of British production houses have gone down the expensive and time consuming road of creating schemes, prospectuses and production slates - that until they can become active, are a further drain on the sustainability and potential creativity of our film making community.”

He added: “It is also unsatisfactory that there has been no further clarification on the interpretation of the “disqualifying purpose test”. Presently nobody seems to understand the exact meaning of this and therefore it is disingenuous of Government to expect individuals to invest via EIS when the details of this test are unknown.”

Others took a more sanguine view, with confidence that the EU State Aid Approval will be granted within months. Several pointed out that the start of the next tax year and the early summer months are generally the quietest period for EIS anyway.

 “This is below the £10m that had been previously suggested and to that extent will be a blow to companies in the media sector who were looking for a higher limit,” said Sue Crawford, Head of the Tax Group at Media Law Firm Wiggin LLP. But she noted that “the cash pot available…has been diluted by the announcement that there will also be relief for TV production, animation and video games.” She called the £5 million figure an acceptable compromise.

“The EIS changes in today’s Budget are a boost to the film industry, which has struggled to maintain stability in recent years. These changes will be welcomed by both EIS film funds and by independent producers seeking to raise EIS monies on a film-by-film basis,” added Abigail Payne, a Partner in the Film and Television Group at Harbottle & Lewis. 

Martin Smith, special adviser at Ingenious, was also upbeat: “I’m pleased for all creative businesses that stand to gain from the new reliefs. The Budget proposals help to level the global playing field for animation and games.  However I would add that tax reliefs do not of themselves make companies any more sustainable.  This requires other interlocking remedies - including the attraction of more business talent to the sector and substantially more private investment”.

Ivan Mactaggart, Producer/Executive Producer at Trademark Films, warned that what may affect smaller players in the EIS market was the fact that “much larger companies with up to 250 employees” were now permitted to enter the EIS arena. “The danger, from a film point of view, is that more established and more asset-rich companies can now access EIS. They may be strong competition for film companies.”

Many industry figures have queued up to make enthusiastic statements welcoming the tax relief for high-end TV drama, animation and video games, among them Wallace & Gromit producers Aardman.

“We believe that the tax credit for UK animation will be transformational for our industry. We have seen a dramatic decline on UK television of home produced animation and we now have a shot a reversing that trend. The credit will create thousands of UK jobs and our research shows that there will be a long term financial gain the for the UK,” stated Miles Bullough, Head of Broadcast, Aardman Animations.

Ivan Mactaggart called the relief for high-end TV drama “extremely positive,” but added a small caveat. “It’s a shame that they (the reliefs) are a year off and the devil is in the detail.”

“What will be absolutely critical over the coming year is to make sure that the EC approve the scheme and to make sure that the regulations that apply (to the tax break) encourages a two-way arrangement…it should not only offer an incentive for UK producers to produce and make these (TV) films and series in the UK but also encourage inward investment,” commented Stewart Mackinnon of Headline Pictures (which specialises in both film and high-end TV drama). He called for the new tax break for TV drama to be made more flexible and easier to work with for international coproducers than the current UK film tax credit.