UK chancellor to extend Enterprise Investment Scheme

UK Chancellor George Osborne has announced in his 2011 Budget today that the annual amount that companies will be eligible to receive through the Enterprise Investment Scheme — which can be used by UK producers to raise private financing for films — is to increase from $3.2m (£2m) to $16m (£10m), from April 2012.

From April 2012, the amount that an individual will be able to invest via the EIS scheme will also be increased from $812,000 (£500,000) to $1.6m (£1m). The size of a company eligible for an EIS investment is to be increased from those with 50 employees and assets of $11.4m (£7m) to those with 250 employees and assets of $24.4m (£15m).

Meanwhile, from April this year, the income tax relief that an individual can claim on any EIS investments made is to rise from 20% to 30%.

Robert Paul, of London accountancy firm Nyman Libson Paul (NLP) which specialises in EIS investments for films, describes the proposed changes, which will come into effect “subject to state aid approval” as a “major boost” to the UK film industry.

“Films are based on investment and the better the encouragement to invest, the more likelihood that films will be able to get their funding and that they will actually get made.This is going to greatly incentivise private invidividuals to put money into films,” he said.

Meanwhile fellow accountant at NLP, Anthony Pins, who is currently putting together an EIS deal on a film version of TV series CatWeazle for Intandem, explained that the changes were likely to encourage bigger budget films to use the EIS scheme. “Under the current rules, the films that are around the £5-6m tend to go elsewhere, so this would be good for them.”

The Budget separately unveiled a new tax incentive to boost legacies to charities and the arts, cutting inheritance tax bills.

Also, the Budget noted that the UK’s current film tax relief will have to be resubmitted to the EU State Aid committee.

The EC makes its decisions based on the state aid rules in the oft-renewed 2001 Cinema Communication as well as the rule in applying the cultural derogation of the EC Treaty.

In November 2006, the European Commission had approved the revised UK film tax incentive scheme (and its Cultural Test) through March 31, 2012.

The EU’s state aid policies are designed to block one company or industry getting favourable tax treatment, and also in maintaining a level, competitive playing field throughout the EU.

Even when abolishing the UK Film Council, the current Coalition Government has repeatedly underlined its commitment to continuing the current film tax incentive. A document issued today affirmed: “The Government recognises the value of providing stability and certainty to the UK film industry through continued support for the sustainable production of British film.”

In addition to the Budget, the Government launched its UK-wide Plan for Growth which includes a new Creative Industries Board, which will promote growth in the creative industries.

Members of the board will include representatives from the BBC, BSkyB, Pact, and Warner Bros.

Its aims will be to encourage investment (including smaller firms’ access to capital) and look at issues surrounding creative exports, skills, IP and infrastructure. BBC Worldwide was singled out as an organisation that can become more of a central player in UK creative exports.

The idea for the board came from a recent roundtable including culture secretary Jeremy Hunt, culture minister Ed Vaizey and business secretary Vince Cable.

“Establishing a Creative Industries Council will give the sector the voice it deserves,” Vaizey said. “The Council will provide a clear route for the sector to engage with government, with the financial community and coordinate action on barriers to growth.”

The Plan also included an overhaul of rules to support superfast broadband roll-out (as well as mobile broadband) and increasing the level of support to IP-intensive businesses to exploit their works in the UK and overseas.

Among other notable points was that creative industries (especially smaller firms) will have new grant funding for advanced apprenticeships.

The government said that it would bring together the creative industries and the finance community in June to improve engagement between the two sectors.

Martin Smith, Special Adviser and Policy Spokesman at Ingenious Media, said: “This announcement is good news.  We await more detail as to the precise terms of reference of the new Council, but we welcome the attention given to the creative industries in the Growth Review and especially the clear focus on investor perspectives.  The investment agenda is crucial to the future competitiveness of the UK’s creative sector.  As the Growth Review acknowledges, amongst other things this means improving access to finance and helping businesses retain more of their IP.”