How we assisted a film and video production company in obtaining EIS advance assurance from HMRC

We recently assisted a film and video production company in obtaining EIS advance assurance from HMRC. We have previously assisted other film and television companies, as demonstrated by our case study here.

SEIS and EIS Reliefs

The Seed Enterprise Investment Scheme (SEIS) and The Enterprise Investment Scheme (EIS) are government initiatives that provide a valuable source of funding to early-stage companies by offering tax reliefs to investors. It can be difficult for early-stage companies to attract the investment required for growth and development as such investments may be considered illiquid and risky in nature, SEIS and EIS can alleviate some of that financial risk.

Please see our detailed article here which explains the SEIS/EIS reliefs that investors can benefit from.

Common Issues with Film Production Companies

Since introducing the risk-to-capital condition, HMRC has been very strict with film, video and television production companies seeking to rely on SEIS and EIS. HMRC’s perspective is that the SEIS and EIS schemes are designed for growth companies which must be creating a scalable business to be eligible. Therefore, HMRC will need to be satisfied that the company seeking to rely on such a scheme meets the risk to capital condition. The condition has two parts: (1) whether the company has objectives to grow and develop over the long term (which broadly mirrors an existing test with the schemes); and (2) whether there is a significant risk that there could be a loss of capital to the investor of an amount greater than the net return.

For example, one common issue is that HMRC will want to see a company demonstrate that it is seeking to produce a slate of films and intends to grow and develop in the long term, rather than intending to operate as a single purpose vehicle (SPV) and produce only a single film before being dissolved.

How we helped

Our client, a film and production company had been trading for more than three years so was therefore disqualified for raising SEIS investment. However, the client was still within the seven-year qualifying period applicable to EIS companies. Our client wished to make an application to HMRC for EIS advance assurance.

We began by requesting from the client the relevant documentation for the application including the pitch deck/business plan explaining the company’s business, financial forecasts for the next three years, an expenditure spreadsheet detailing where the investment monies will be spent (and in what proportions), details of the company’s shareholders, and so on.

Once we had received and digested the relevant information from our client, we then reviewed and amended the submission documentation so that there are no smoking guns within the documents that could cause an issue from an EIS perspective. We then expediently produced a detailed, comprehensive and well-considered letter of several pages in the form of a cover letter to HMRC, explaining how our client is compliant with the relevant EIS rules.

We demonstrated that our client is not looking to produce a single film but its vision is to build a growing video production company that will be self-sufficient in its own right and which, as it develops will continue to generate employment opportunities. The letter also covered our client’s anticipated expenditure of the investment monies (i.e., on staff and business development costs), revenue streams (i.e., brand film production, videos for brand partnerships, content repurposing and distribution, consultation and creative services, etc), and fundraising (i.e., the monies the company is seeking to raise pursuant to EIS and the purpose for raising the funds).

Importantly, we addressed the risk to capital condition in the cover letter, explaining that our client will be focusing on creating lasting and future revenue streams and will exist for more than three years with the aim of creating a valuable long-term business (creating many employment opportunities). We submitted that although the company would need to purchase expensive video technology equipment, such expenditure would not amount to preservation of capital nor de-risking of the investment, given that such assets depreciate rapidly and that such assets are sufficiently necessary for the company’s trade that there is a commercial rationale for owning such assets.

Having ensured that the company had provided all necessary supporting documents and that our cover letter contained all of the appropriate arguments, we submitted the application to HMRC.

The Outcome

In only 11 days following the submission of the application, HMRC responded by confirming that the company’s application for EIS advance assurance had been approved. It is quite rare for film production companies to receive advance assurance at the first time of asking, usually we expect a round or two of correspondence with HMRC. However, as a result of our diligence, expertise and experience with such EIS applications, no further questions were asked by HMRC thereby reducing the need for our further involvement and shortening the overall timeframe of the application process. Our client can now demonstrate to potential investors that their investment will likely be EIS complaint and that such reliefs can be offered as a means of attracting investment.

How we can help you

Applications to HMRC for SEIS and EIS advance assurance are complicated and it is important to seek assistance to ensure you get it right the first time, especially if the application pertains to a film and television production company. Please do get in touch via wewillhelp@jonathanlea.net – we will be more than happy to help.

Image by Gerd Altmann from Pixabay